The pound’s biggest five-month rally in 24 years is ending as the Bank of England floods the shrinking U.K. economy with newly printed cash and slowing inflation precludes higher interest rates to lure investors.
The currency soared 23.5 percent from March 10 to Aug. 5 on speculation U.K. assets would rise as the worst financial crisis in six decades eased. The sharpest increase since 1985 ended Aug. 6 after policy makers said the recession was deeper than anticipated and moved to spur the economy by expanding its purchases of U.K. debt 40 percent to $290 billion. Six days later, central bank Governor Mervyn King said inflation will probably fall below the Bank of England’s target.
The pound has slumped 2.6 percent since Aug. 5 to last week’s $1.6543 close. Only three of 176 currencies tracked by Bloomberg did worse. BNP Paribas SA, France’s largest bank, predicted another 9.3 percent decline to $1.50 in 12 months. Bank of Tokyo-Mitsubishi UFJ Ltd. said the currency is near a “tipping point.” Just before the Bank of England decision, pound futures traders became as pessimistic as they were two weeks before March 10’s eight-year closing low as weekly bets against sterling jumped 18.6 percent, the most in a year.
“I’m super-bearish on the pound,” said Hans-Guenter Redeker, the London-based global head of foreign-exchange strategy for BNP. “The Bank of England has made it clear it can’t afford a stronger currency.”
Borrow, Spend, Print
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