Why It's Time to Short the British Poundhttp://moneymorning.com/2013/02/20/is-g ... und-again/
Investors expect Britain to have annual inflation higher than 3.2 % over the next decade - the highest among major economies.
And Carney, who will replace Sir Mervyn King as governor of the BOE in July, said he will allow higher inflation than his predecessor.
The BOE's Monetary Policy Committee also supported higher inflation targets in its February inflation report.
"Attempting to bring inflation back to the target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the inflation target in the medium term," the MPC said in the report.
Yet, traders fear Carney will pump too much stimulus into the economy, raising inflation and devaluing the pound even more.
"[Hedge funds] are now looking very closely at what they can do with sterling," Rob Kaplan, chief investment officer of Permal, one of the world's largest investors in hedge funds, told the Financial Times. "With Carney coming in, there are interesting opportunities [either] shorting sterling or going long volatility on sterling."
The best way to short the pound is through options, which can be done in the FOREX market, a global market that deals only with currencies and currency contracts.
There's also the CurrencyShares British Pound ETF (NYSE: FXB), which tracks the pound.
And besides shorting the pound, or sterling, another way to play its negativity is with inflation-linked bonds.