“Even after the biggest drop of any major currency in the first two months of the year, the pound is still overvalued as both Pacific Investment Management Co. and hedge fund FX Concepts LLC bet it will fall further.
Sterling tumbled 6.7 percent versus the dollar through February, touching the weakest level in almost three years, yet remains 2.3 percent overvalued, based on an Organization for Economic Cooperation and Development measure of purchasing power parity. Options traders have raised bets to the most in almost two years that it will depreciate against the euro, and strategists are cutting their forecasts at the fastest pace after the yen.
The slide reflects growing speculation the Bank of England will boost stimulus while also debasing the currency as the U.K. risks an unprecedented triple-dip recession. Current GovernorMervyn King, who gives way to Bank of Canada Governor Mark Carney in July, has said a weaker pound would help rebalance the economy.
“You ain’t seen nothing yet,” said Neil Williams, chief economist in London at Hermes Fund Managers Ltd., which oversees about $42 billion. “If the world believes there will be significantly more stimulus coming, which I expect, the pound is likely to be under further pressure.”
Sterling Tumbles
The U.K. currency slid to $1.4986 on March 1, the lowest level since July 2010, and down from this year’s high of $1.6381 on Jan. 2. It rose 0.3 percent to $1.5166 at 10:31 a.m. London time today. That’s still a 6.7 percent drop from the start of the year, the third-worst performance among 32 major currencies tracked by Bloomberg after the yen and the rand…..”
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