Hedge funds make millions from collapse of the pound

Britons visiting the U.S. are paying a heavy price for the fall in the pound, but not everybody is losing out.

Three of Britain's biggest hedge funds have scooped a windfall from the collapse in sterling.

It was claimed yesterday that the funds have made 'hundreds of millions of pounds' by betting on the pound going down.

Sterling is trading at around $1.49, a sharp decline from the $1.70 levels of last August.

For British tourists, the fall is a disaster, increasing the cost of holidays as most workers in need of a break are already having to cope with a pay freeze, or even a pay cut.

Funds managed by Man Group, Winton Capital and BlueCrest are all believed to have profited from making financial bets about the pound's weakness. The three funds could not be contacted yesterday about their winning decisions.

Hedge funds - dubbed 'robbers in pinstripe' as the world entered the recent recession - are best-known for short-selling, a way of making money from falling share prices.

The practice involves borrowing shares in a company and selling them on the stockmarket. The hedge fund makes a profit if the price drops by the time they buy them back.

Harry Adams, a senior trader from foreign exchange brokers Schneider, said the pound was expected to keep on dropping.

He said: 'Currency markets hate uncertainty. We can see sterling going down to fresh lows of $1.35. We are in a bear market for sterling.'

Mr Adams said currency speculators were concerned about the threat of a hung parliament or a Labour win, and the lack of details about tackling the deficit. He said: 'If Britain loses its triple-A credit rating, that would be a disaster for sterling which could go as low as $1.20.'

Traders are lumping Britain in with a group of fiscally challenged states dubbed the 'STUPIDs': Spain, Turkey, the UK, Portugal, Italy and Dubai. Membership of this club is humiliating for the UK, particularly Gordon Brown, whose claims about his management of the economy are central to his election strategy.

Shadow Business Secretary Ken Clarke warned that the pound could be catapulted into a further downward spiral in the event of a minority government or a Labour win. He said: 'The voters must not elect themselves into a financial crisis.'