- Bill Gross is betting on the UK pound to gain against the US dollar, which hit a 20-year high this week.
- The US trade deficit and fewer interest-rate hikes than expected will weigh on the dollar, he believes.
Billionaire investor Bill Gross is betting on the British pound to rise against the US dollar, as he expects the gaping US trade deficit and a premature end to the Federal Reserve's interest-rate hikes to weigh on the American currency.
"Despite fiscal and political problems, I am long the pound because of an overvaluation of the dollar against all major currencies," Gross told Bloomberg in an email.
"Continued large trade deficits and a ceiling on the Fed's ability to raise rates to anticipated levels due to future recession will limit further depreciation of the pound and likely lead to future relative increases compared to the dollar," he added.
The dollar index, which measures the greenback's strength against a basket of six other major currencies, surged to a 20-year high on Wednesday. On Thursday, the pound dropped to its lowest level against its US counterpart since 1985.
Early Friday, the UK currency was up 1% at $1.16, while the dollar index was down 1.1% at 108 points as it lost ground against the likes of the euro and the yen.
Gross' view appears to be that as the US is importing about $70 billion more of goods and services than it exports each month. Dollars are flowing out of the country and there is tepid foreign demand for the US currency, meaning it's unlikely to rise in value.
Moreover, he seems to expect the Fed — which is raising interest rates aggressively to curb inflation — to plunge the US into a recession. That would force the US central bank to scrap any further hikes, even though the market is pricing in a third jumbo 75-basis-point rise in September.
Veteran investor Gross is nicknamed the "Bond King" because he cofounded investment company PIMCO and managed its flagship bond fund.
The fixed-income specialist has shifted his view on the pound since 2010, when he warned Britain was a "must to avoid."
Back then, the UK's huge debts threatened to taper its economic growth and devalue its currency. That meant its government bonds were "resting on a bed of nitroglycerin," he wrote in an investment outlook for PIMCO at the time.
Gross retired as a professional money manager in 2019, but he's continued to share his views on markets and the economy. In March, he told the Financial Times that if the Fed raised rates above 3%, it would likely tank the housing market and break the US economy.
He also slammed the central bank for maintaining near-zero interest rates for so long, as they discouraged saving, undercut returns from retirement accounts, and fueled rampant speculation on high-risk assets such as meme stocks and non-fungible tokens (NFTs).
Notably, Gross bet against GameStop when the meme stock skyrocketed in January 2021. He was down between $10 million and $15 million at one point, but doubled his wager and ended up making around $20 million, he told the FT.