British Union flag, also known as a Union Jack, and an American flag at ETX Capital, a broker of contracts-for-difference. The pound has fallen more than 8% against the dollar, and is attracting short bets from traders as the British economy faces soaring inflation and a cost-of-living crisis. Chris Ratcliffe | Bloomberg | Getty Images
“The ECB is just coming out of negative rate territory and we think there are non-linearities to doing that, where the BOE is already in positive rate territory — we don’t think they can really hike all that much further,” Zief said. “So even though we do think sterling recovers a bit against the dollar come the end of this year, we have really been trading sterling short on the crosses, so long commodity-sensitive currencies, growth-sensitive currencies or even the euro against sterling. It’s really not one of our favorite currencies in the G10.” According to the most recent Commodity Futures Trading Commission data on May 10, asset managers and institutional investors held more than 128,000 short positions against the pound, against just 32,000 long positions. Short-selling is an investment tactic where a speculator borrows a financial instrument or asset, such as a stock, and sells it in the hope of buying it back later at a lower price, thereby making a profit. Short sterling against Swiss franc In a research note Tuesday, Goldman Sachs currency strategists said sterling underperformance is the Wall Street giant’s strongest G-10 foreign exchange conviction at the moment. “While the U.K. faces a similar trade-off as other major central banks between slowing growth and well-above-target inflation, the BoE has chosen to place a relatively bigger weight on the growth outlook while still relying on supply-side factors to bring inflation down to target,” Goldman Sachs Co-Head of Foreign Exchange Strategy Zach Pandl said. “While the merits of this approach are subject to debate, what matters for markets is that it is de facto a weak currency policy. In light of the BoE’s differing policy trajectory, we are again revising down our forecast for GBP/USD to 1.19, 1.22 and 1.25 in 3, 6 and 12 months (from 1.22, 1.26 and 1.31 previously).” Goldman has already recommended investors go long on the euro against the pound, with a target of £0.87, and this week also launched a short position on the pound against the Swiss franc, with a target of 1.18 and a stop at 1.24.