Selling Britain by the pound: Time to short sterling, say currency traders

 

The pound was today heading for its worst month against the euro since the depths of the financial crisis as the UK’s waning “safe-haven” status sent traders rushing for the exits.

Sterling was again on the back foot against the single currency, falling below €1.17 at one point.

The pound has lost 4.9% against the euro in a miserable start to 2013, putting it on course for its worst month since December 2008.

This was when the Bank of England slashed interest rates from 5% to 2% in a matter of months following the collapse of Lehman Brothers.

Against the dollar, sterling has lost 3.1% this year, touching lows around $1.57 today.

The pound’s 2.9% slide against the basket of the world’s leading currencies has only been exceeded by Japan’s yen, where the nation’s central bank has set out huge stimulus plans to get its economy out of the doldrums.

Investors are ditching the pound in favour of buoyant equity markets and the euro as the immediate sense of crisis in the eurozone recedes and risk appetite soars, traders said.

London’s blue-chip benchmark, the FTSE 100, is close to five-year highs as investors pile into shares. The borrowing costs for eurozone strugglers like Spain and Italy have also fallen as their riskier debt has been snapped up.

Matt Basi, sales trader at CMC Markets, said: “It’s not a full-blown capitulation, but there is a feeling among investors that the rally is here to stay. Among clients it’s now one-way traffic out of sterling.” Far worse-than-expected growth figures on Friday, showing a shock 0.3% decline for the UK between October and December, have added to the malaise over sterling, as well as the likely loss of the nation’s AAA rating.

The Chancellor is also likely to bust official borrowing forecasts this year.

BNY Mellon currency analyst Simon Derrick said: “Sterling has fallen a long way very, very rapidly, at the sort of pace that it was during the monstrous downturn of 2007-09 so that is a bit of a worrying signal.

“I think we could see sterling in the low $1.50s against the dollar and below €1.15 against the euro. If it went through $1.50, people would really sit up and take notice. Sterling has been a  safe haven play since the Greece bailout and people are finally assessing it on the fundamentals.”

A lower pound would be good news for Britain’s exporters but could add to the headaches of the Bank of England’s inflation watchers. At Davos Angel Gurria, secretary of the OECD think tank, claimed there was no more room for monetary policy to boost economies but incoming Governor Mark Carney disagreed, fuelling expectations of more money printing.

Investec Corporate Treasury analyst Lee McDarby said: “The impression left is that Mr Carney is dovish to the degree that he doesn’t believe monetary policy is ‘maxed out’ and he is willing to consider other monetary policy targets than inflation, which will fuel sterling negative sentiment.”

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