By Jamie McGeever

ORLANDO FL (Reuters) – There is growing evidence that Britain is experiencing a crisis in its cost of living. The hedge funds can capitalize on the rapid fall in sterling against the US dollar.

U.S. Futures Market data shows that funds have made their largest bet against the Pound since October 2019 – a wager now valued at close to $5 Billion.

It is amazing to see how quickly speculators are turning against the pound. Commodity Futures Trading Commission data revealed that the funds had a very small net sterling long position just before Russia invaded Ukraine on February 24th. The pound traded at $1.36.

Nine weeks later funds are net short sterling, with 58.914 contracts. That’s $4.785 Billion in aggregate. These were the biggest two-and-a-half-year bets against Sterling.

Cable has fallen from $1.30 support down to $1.27. This is the lowest level since October 2020. In just nine weeks, this is almost a 7% decline. Although the fall was rapid, traders still have $1.25 at their disposal.

A short position basically bets that the asset’s prices will decline, while a long one is an attempt to bet they will increase.

Kit Juckes from Societe Generale (OTC), believes that the interest rate appeal of the pound could rapidly evaporate. According to him, the Bank of England is unlikely to raise rates another 150 basis points this year. Money markets still expect it, but the economic situation won’t allow for that.

Juckes stated that the UK’s consumer was feeling its real incomes reduced by price hikes, particularly in utilities bills. Juckes also wrote Friday.

BOE’S ‘CHALLENGE’

Rapid decline in sterling sentiment is a reflection of rapid economic collapse in the UK.

According to an official survey, almost a quarter (25%) of British people believe it’s harder to pay their household bills and more than 40% claim they won’t be able to save the money over the next twelve months. This was done before the rise in energy costs.

Retail sales volumes dropped by unexpectedly large 1.4% between February and March. GfK, a market research company, stated that consumers’ confidence fell to their lowest levels since the beginning of records nearly 50-years ago.

According to the International Monetary Fund, UK’s economic growth will be among the worst next year. Russia is the only exception. Inflation in UK should be highest within the G7.

Jane Foley from Rabobank notes this is a challenge to the BoE. Jane also says that “buying interest in the Pound may evaporate quickly if the recession fears grow.”

The economic outlook for Sterling is grim, but the political outlook has worsened as Prime Minister Boris Johnson faces increasing pressure to resign.

Legislators have initiated an investigation to see if he misled parliament about breaking lockdown rules during COVID-19, with growing calls for his resignation.

After Johnson was recently sanctioned for violating the law, this move came as a surprise to many.

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(The author is a columnist at Reuters.

(By Jamie McGeever. Editing by Hugh Lawson.