When George Soros Broke the GBP – The Trade Of The CenturyVW Staff
The market expected that Britain would have to devalue its currency and no amount of interest rate hikes or currency purchasing would change that. At this point, the sentiment that Britain would exit the ERM and devalue its currency was a self-fulfilling prophecy; if the speculators believed it enough to put their money behind it, it would eventually come true.
At 7:30 PM that night, Lamont held a news conference to announce that Britain would be exiting the ERM and floating its currency on the market. Soros and the speculators won.
The Aftermath of Black Wednesday
British financial history now refers to September 17th, 1992 as “Black Wednesday;” George Soros, however, probably calls it something like “Awesome Wednesday.” Once Great Britain floated its currency, the pound fell 15% versus the Deutschmark and 25% versus the US Dollar.
If you’ll remember, Soros’s Quantum Fund had approximately $15 billion betting that the pound would fall versus other currencies. They had borrowed billions to make this trade and they were right. Here’s what happened to the value of their fund versus the price of the pound:
Source: The Handbook of Hedge Funds
The value of the fund increased almost instantly from $15BN to $19BN when the pound floated; a few months later, the fund was worth almost $22 BN. Remember, this is a hedge fund, so Soros and his partners made at least 20% of that $7 billion upside, which is at least $1.4BN. And that, my friends, is how you become a billionaire.
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