Soros vs. Rogers: Pound Sterling Headed for Parity with the U.S. Dollar?

by Sean Hyman

George Soros is the world renowned investor that shorted the British pound so heavily back in 1992 that it was even more than the Bank of England could combat and it forced the pound out of Europe’s system of linked exchange rates. The plummeting pound caused the central bank to panic and for Soros to profit… to the tune of $1 billion dollars in profits. So that tells you just how enormous his position had to have been.

That trade alone really gave him a platform from which to speak from and be heard. However, he has had other “great calls” too. For instance, he “bet” correctly when he said that the Deutsch mark (which is now part of the euro) would rise when the Berlin wall fell.

He also called a top in Japanese stocks in 1989. So he’s made some good calls through the years.

Lately, Soros has been busy shorting the pound again. He shorted it all the way down to 1.40 and then took off the short position. He now says he’s neither bullish nor bearish on the pound at this point. He simply took off the trade because it didn’t seem that the risk to reward was there on the trade any longer.

The pound plummets again and Soros “moves in for the kill” once again!

Soros told about his latest trade and his “new profits” at the World Economic Forum in Davos, Switzerland.

So does everyone hold this view? His old trading partner who founded the Quantum Fund with him, Jim Rogers, doesn’t seem to agree. He is very opinionated on the pound. In fact, on January 20^th, he came out and boldly claimed that the pound was finished and that it should drop to parity with the dollar (in other words GBP/USD would equal 1.00). The pound is currently at 1.4329 as of this writing.

What is his reasoning for his continual bearish view? Jim says that it is because of the “turmoil in the banking system and a decline in the North Sea oil output”. This is why he feels that the pound will still succumb to weakness until it is finally able to be exchanged “one to one” with the greenback.

Back in Davos, Soros is hinting at some weaknesses in the euro that will, in the end, cause these governments to have to work together in order to not see an unraveling of the euro. Soros stated that the widening gaps between interest rates of Spain, Italy, Greece, Portugal and that of Germany “reflects structural weaknesses in the construction of the euro”.

So at this point, he’s not necessarily calling for the downfall of the euro but rather the need for these governments to work with each other even more. He says that individually, they lack the borrowing power to protect their banking systems.

Therefore you can bet that he’s watching the “on-goings” in Europe pretty closely. If he smells blood, you can be sure he will attack it too. But until then, I’m sure he will continue to swim through the waters like a shark looking for his next meal.