Bets against pound mount after Bank of England rate inertia

Since the beginning of 2022, Sterling has fallen 11.8 per cent against the dollar, making it one of the worst performing currencies - in terms of spot return - in the G10.

Traders are strengthening their stance against the pound after the Bank of England scuppered City bets on a first rate hike in three years this month.

Short bets – in which traders borrow assets and sell them expecting to make a profit in the future after their price falls – have mounted to around £2bn, the highest since June 2020.

The Old Lady confounded the City earlier this month when it left rates unchanged at a record low 0.1 per cent despite increasingly hawkish rhetoric from its rate setting committee in the run up to the decision.

Bets for the pound had snowballed in the lead up to the Bank’s rate setting meeting in November as traders braced themselves for a 15 basis point rate rise.

Despite mounting opposition to the currency, data released since the Monetary Policy Committee’s decision have suggested the Bank may move to hose-down runaway inflation at its next meeting on December 16.

A strong jobs report from the Office for National Statistics (ONS) found payroll numbers jumped 160,000 in October, underlining the economy’s ability to stand on its own two feet after the furlough scheme was pulled at the end of September.

Last week, separate figures from the ONS showed inflation is running at the highest rate in the UK for nearly a decade, hitting 4.2 per cent last month.

The prints sparked a flurry of speculation from City economists over what the Bank will do next, with many forecasting rates will climb next month.