“I don’t think you can start getting bullish on sterling.”
That was Crispin Odey, notable hedge fund manager of Odey Asset Management and well-known donor to the Conservative party, speaking in an interview with the Financial Times on Tuesday about his short positions against sterling.
He told the FT that he believed the market was underestimating how long the U.K. would experience high inflation and consequently shorted the pound and longer-dated gilts.
The move paid off as Odey Asset Management was one of the hedge funds that made huge profits just before the pound crashed to a 37-year low last week. Odey’s main European fund is up 145% so far this year.
“It [sterling and gilts] is all part of the same story of higher inflation. The market has been a long way from where inflation was,” he said, adding that the pound could well hit parity against the dollar.
sat at $1.0793 against the U.S. dollar on Tuesday, recovering a touch after statements from both the Bank of England and Treasury late on Monday.
Odey predicted the Bank of England was unlikely to intervene to rein in inflation. “That will be too much of a panic,” he told Bloomberg on Monday.
“I think sterling is still quite vulnerable and we have to see how it goes,” he added.
Gilts, meanwhile, have taken a battering in recent days after investors feared of U.K. Chancellor Kwasi Kwarteng fiscal policy would pressure government finances. The 10-year U.K. gilt yield
fell 8 basis points to 4.20%, but it’s still significantly above the 3.50% level it stood before Kwarteng outlined £45 billion of tax cuts.