FirstFT: Investors bet against pound over ‘dire’ stagflation threat

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Investors are betting that the pound will fall further after a tough start to 2022 as a “dire” mix of soaring inflation and slowing growth darkens Britain’s economic outlook.

Wagers that sterling will fall are near their highest level in almost three years, according to Commodity Futures Trading Commission data, which track how speculative investors are positioned in futures contracts, a proxy for sentiment in the $6.6tn-a-day foreign currency market.

Even as Boris Johnson survived a parliamentary confidence vote this week, markets maintained a gloomy economic backdrop, analysts said. The implications of the UK prime minister’s victory were also muddied by uncertainty over who might have replaced him, currency traders said, with the political twists largely a sideshow for a foreign exchange market focused on the potential for a UK recession this year.

Sterling whipsawed around Monday’s vote, but yesterday traded close to where it was against the US dollar a week ago at $1.254. It has shed 7 per cent this year against the dollar.

“The market is very bearish on sterling,” said Sam Lynton-Brown, head of developed markets strategy at BNP Paribas. “We still think it can weaken further.”

Share your feedback on this newsletter by emailing firstft@ft.com. Thanks for reading FirstFT Europe/Africa. Here’s the rest of the day’s news — Jennifer

Five more stories in the news

1. ECB takes hawkish turn to counter record-high inflation Christine Lagarde yesterday announced plans to lift interest rates above zero for the first time in a decade. The European Central Bank surprised markets by signalling that it was likely to raise rates by half a percentage point in September, in addition to a bigger-than-expected quarter-point rise in July.

“They have reversed the burden of proof. Inflation needs to improve for them not to hike by 50 basis points” — Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management

2. Sunak blamed for squandering £11bn of taxpayers’ money Chancellor Rishi Sunak has been accused of paying too much interest servicing UK government debt after the Treasury failed to take out insurance against interest rate rises on almost £900bn of reserves created by quantitative easing, according the National Institute of Economic and Social Research.

3. Russian-backed court sentences British and Moroccan ‘mercenaries’ to death Aiden Aslin and Shaun Pinner from the UK and Brahim Saadoun from Morocco could face a firing squad after being found guilty of working as mercenaries for Ukraine by the “supreme court” of the Donetsk region, which is controlled by Russian-backed separatists.

The latest on the war in Ukraine

• Russian assets: Ukraine and its western allies must target Moscow’s wealth to offset an estimated $600bn in damage caused by the invasion, an adviser to President Volodymyr Zelenskyy told the FT.

• Energy: The Biden administration has asked India to exercise restraint in increasing imports of discounted Russian crude that has lost buyers in Europe.

• Opinion: With Russia’s sanctions-hit oil facing a difficult route to market, there are legitimate fears that supply could fall much further, writes David Sheppard. Martin Sandbu argues that ending Russian energy imports remains essential.

4. State Street squashes Credit Suisse takeover rumours The US custody bank denied it was in talks to acquire Credit Suisse, knocking back a report from a Swiss blog that it was pursuing the troubled Zurich-based lender and exacerbating sharp moves for the shares of both companies.

5. January 6 riot was part of ‘attempted coup’, committee alleges Members of Congress yesterday laid out what they described as Donald Trump’s efforts to lead a “coup” against the US government that was months in the planning and only stopped with the help of his top officials. Catch up with our blog on the hearing.

Thank you to everyone who took part in yesterday’s poll. Seventy-eight per cent of respondents believed that US data analytics group Palantir was not suitable to run the UK NHS’s operating system.

The days ahead

Inflation indicators The Bank of England releases its quarterly survey of public inflation expectations. Italy publishes April industrial production data while Russia’s central bank delivers an interest rate announcement. Across the Atlantic, the US has May consumer price index data. See how your country compares with our inflation tracker.

Elections On Sunday, France kicks off parliamentary polls for the 577 members of the Assemblée Nationale. Italy holds municipal elections.

G7 science ministers meet Officials will gather in Frankfurt on Sunday to discuss opportunities to collaborate on the study of long Covid, carbon capture and removal and research “values”, said Bettina Stark-Watzinger, Germany’s minister for education and research. (Science Business)

Join us on June 16-17 for the FT Future of Finance, live-streamed from the heart of The Next Web (TNW) tech festival. Register here.

What else we’re reading

Ugandan lab leads hunt for zoonotic diseases The emergence of Covid-19 and monkeypox, both of which jumped from animals to humans, have been a reminder of the power of diseases to reshape our world. A $3mn laboratory run by the Uganda Wildlife Authority could be central to identifying the virus capable of sparking the next pandemic.

The LME debacle raises serious questions for the City of London The episode threatens to undermine the Square Mile’s claim to ensure a level playing field, writes Gillian Tett. The London Metal Exchange’s reforms are sensible, albeit hopelessly belated. But they may not be enough to rebuild confidence.

What James Joyce can teach us about economics A century on from the publication of Ulysses, David McWilliams asks whether artists and entrepreneurs — the ingenious bohemian and the tedious bourgeois — are really that different.

Regulate stablecoins, please! There is nothing new about a financial venture that tells investors something is a safe bet when it is not. So it was with last month’s meltdown of terra, which issuers had promised would maintain a value pegged to the US dollar but had little to back that claim. Sheila Bair, former chair of the US Federal Deposit Insurance Corporation, writes it is time for regulators to get creative and use their powers to act.

The global race for supercomputing power From modelling climate change to developing products, the capabilities of machines are rapidly improving as the US, China and Japan jockey for computing speed.

Travel

FT Weekend editor Alec Russell recently visited Athens to see 3,000 years of history on a tight timeline — just three days. Here’s what was on his itinerary.