As I said yesterday, George Soros - the billionaire investor - who “broke the Bank of England” got his “celebrity status” by betting against the British pound…and now he’s looking to do the same thing by shorting the British pound again.

George Soros has a laundry list of reasons why he’s betting against the pound - including higher household debts and a damaged financial sector that’s weighing on the whole economy.

But honestly, that just skims the surface of U.K.’s troubles. There are several other reasons why you should follow Soros’ lead and short the pound in the coming months. I’ll tell you how in just a minute. First, why does the U.K. have such a bad reputation these days?

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On Monday, Bradford & Bingley - the U.K.’s biggest lender to landlords - announced they lost £8 million (US$15.6 million) in just the last four months. That is just one example of how bad the housing situation has gotten in U.K.

So now, Bradford & Bingley has to raise some cash. They’re planning to sell 23% of the company to the Ft. Worth-based buy out firm, TPG Inc. And they’re selling it for £42 million (US$82.2 million) less than they thought they were going to get for it.

It’s not going to get better anytime soon either. The U.K. Mortgage Approvals number came out the same day and it was the lowest reading since they started keeping records over nine years ago.

Yesterday, the Bank of England decided to hold rates steady. Why? Because when many people’s number one asset, their house, is going down in value, the last thing you need to do is raise rates. Higher rates make homes just more expensive - especially when many Brits are trying to sell.

Furthermore, consumer confidence numbers are down. You can’t raise rates and improve. If consumers aren’t confident in the economy’s future they’re not going to spend. If they don’t spend, the economy has no “fuel.”

On top of this their manufacturing and services sectors are in the tank as well. So if you raise rates you’re going to make progress a lot more difficult in the corporate world too.

But if you keep rates steady for now, then you’ll allow the economy to continue to hurt and slow down which could ease the inflationary pressures for now.

So that’s the pound side of things. What about the ole greenback?

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Big Pensions, Mutual Funds and Insurance Companies Have Been Quietly Collecting Dollars

According to State Street Corp and Bank of New York Mellon Corp, institutions have actually bought more dollars this year than they’ve sold. That’s the first in quite a while. In fact, Bank of New York Mellon points out that the “dollar buying” is twice that of the 12 month average. These guys aren’t playing around.

Why do these big-name traders feel that the buck could go up from here? These institutions are betting that rates have bottomed and have no where to go from here but upward.

Now two Fed officials have hinted that their focus has shifted back to inflation once again. That means higher rates - if the Fed follows through. For my money, I’m betting the Fed will eventually raise this year simply to fight inflation.

Also, growth is starting to climb again in the U.S. - it just went from 0.6% to 0.9%. The Fed estimates that next year the U.S. economy will grow as fast as 2.8%. I sincerely doubt growth will rebound that fast, but I do think the U.S.’s growth will exceed the U.K.’s growth next year.

You Want to Short the Worse of Two Evils

The Fed has tougher decisions to make right now than they’ve had in years. They’re trying to tiptoe and maneuver around stagflation.

However, I fully believe that they’ll raise rates later on this year and that the U.K. will probably have to cut rates as their economy is expected to slow further just as the U.S. is starting to pick up a hair.

So compared to the pound, the dollar is the “lesser of the two evils.” That means the British pound vs. the U.S. dollar currency pair (GBP/USD) will drop in value in the months ahead. So look for shorting opportunities.

Sean Hyman, Currency Analyst

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Source: Why Soros Is Getting Ready to Break the Bank of England Again, Part II