Traders: Sterling is 20 percent too strong

Currency traders are starting to take the British government at its word, putting the tumbling pound on course for the worst year since 1992.

The pound is about 20 percent too strong against the dollar, even after falling more than 10 percent this year, according to New York-based International Foreign Exchange Concepts Inc, the world's biggest currency hedge-fund company. Futures traders became more bearish on the UK currency than at any time in the past 16 years.

The steepest housing slump in 18 years prompted Chancellor of the Exchequer Alistair Darling to tell Britons they face the biggest slowdown since World War II. The Bank of England kept interest rates unchanged for a fifth month last week to curb inflation that accelerated to 4.4 percent in July, more than twice the central bank's target. During the two previous times the economy cooled since 1997, the pound fell as much as 19 percent.