Pound Traders Most Bearish Since January, Risk Reversals Show

By Kim-Mai Cutler

Aug. 14 (Bloomberg) -- Options traders are the most bearish in seven months on the pound versus the dollar after the Bank of England yesterday cut its growth forecast and unemployment rose the most in almost 16 years, risk reversals showed.

The premium traders are paying for six-month pound put options, which provide the right to sell the currency, relative to calls is the highest since January, according to data compiled by Bloomberg. The risk-reversal rate reached as much as a 1.2 percentage-point premium for puts. Calls grant the right to buy a currency.

The British currency traded at $1.8728 at 11:18 a.m. in London, close to a 22-month low, from $1.8704 yesterday. It was as high as $2.0157 four weeks ago. The pound was at 79.68 pence per euro, from 79.76 pence.

The pound had its biggest loss against the dollar in nine months yesterday after Bank of England Governor Mervyn King said he sees a ``chill in the economic air.'' The central bank cut its growth forecast to 0.1 percent on a year-on-year basis for the first quarter of 2009 and said inflation may slow to below its 2 percent ceiling in two years if policy makers leave interest rates unchanged.

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net