The famed financier is rumoured to have made $2bn by betting against sterling when Britain was forced out of the Exchange Rate Mechanism in 1992.
But his latest gamble, that sterling would fall sharply against the German mark, appears to have rebounded badly on him. Mr Soros is understood to have bet between $6bn and $8bn that the pound would fall heavily, by buying options to sell the currency.
According to foreign exchange dealers, Mr Soros bought "put options" on 31 March entitling him to sell sterling in three months' time at a rate of DM2.70. These options expire tomorrow and, given that sterling is currently trading at just over DM3, they are now worthless.
Had the bet paid off, dealers estimate that Mr Soros stood to make $2bn.
This is not the first time that Mr Soros has faltered since his famous coup against the pound six years ago. Funds managed by the financier are thought to have been caught out by last year's collapse among currencies in the Far East.
The put options bought by Mr Soros give him the right - but not the obligation - to sell the sterling at a given rate. He was banking on the pound being worth less than DM2.70 today. "It seems that the infamous Mr Soros may have got it wrong this time," remarked one foreign-exchange dealer.
However, it is impossible to know how much, if anything, Mr Soros has lost. Although the bet was between $6bn and $8bn, Mr Soros will not have lost anything like that, since the cost of buying the options is only a fraction of their face value. It is also possible that Mr Soros sold his "put" options on to another trader for a higher price than he paid for them when it still looked as though his bet might work. In May this year - indeed at the time when rumours about Mr Soros's currency positions were rife - sterling was trading at around DM2.89.
Soros Fund Management - Mr Soros's company - never comments on its market positions. For Mr Soros to have made money on his put options, the exchange rate would have had to have fallen below DM2.70 - the so-called "strike price" by the end of this month. If the exchange rate had dipped below DM2.70 - say to DM 2.65 - Mr Soros could have then exercised his options, sold sterling at DM2.70, and reconverted his marks to pounds at the going market rate, thereby realising his gains.
Not all currency dealers are convinced that Hungarian-born Mr Soros - a well-known philanthropist in Eastern Europe - has lost out entirely. Some dealers noted that Mr Soros could have mitigated his loss in other ways, for example by adopting the hedging techniques employed in most exchange houses. Others said they had heard rumours that Mr Soros had bought six-month as well as three-month options, meaning that he could still make money if the pound falls substantially over the next three months.
Sterling has recently strengthened against the mark, mainly because of the Bank of England's unexpected decision to raise rates earlier this month, coupled with growing expectations of another rate rise later this summer. On Friday, sterling closed in London at DM3.01, up a pfennig on the day.
Although Mr Soros's judgement on timing may have been suspect, most experts agree that the long-term trend will be for sterling to fall, particularly if the Government commits Britain to joining the single currency. Gerard Lyons, at DKB International, said: "My feeling is that the pound should be at the DM2.70-2.75 level. The current strength of the pound is partly due to short-term cyclical factors."Reuse content