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Monday, October 18, 2021

Bets mount against the pound as supply chain crisis intensifies

The move in the one, three and six-month risk reversals – a hedge against a sudden slump in the currency – signals that investors expect a drop in the pound in the coming months. However, bearish bets on the pound are still well below the levels hit last December highs as the country was forced to reimpose draconian measures to control Covid.

Kit Juckes, chief currency strategist at Societe Generale, said: “We’ve lost the opportunity for a stronger pound because of all these supply chain issues, because when we add it all up it will have had an impact on the economy for sure.

“We were the easiest sell in the market [in the last few weeks] because that was exactly the point where we had all these concerns about supply chains.

“If the euro makes a further break to the downside, the pound will probably fall at least as fast. That’s mostly a stronger dollar story, it’s just that sterling is an easier story to sell to some people.”

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