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British Pound Could Take a Pounding: Strategist

Tower Bridge and City of London financial district
Source: Dominic Burke | Getty Images
Tower Bridge and City of London financial district

The crisis in Europe means tough times ahead for the British pound, this strategist says.

Europe's troubles aren't just roiling the euro zone. They are weighing on eastern European countries, and, increasingly, on Britain. David Woo, head of global rates and currency research at Bank of America Merrill Lynch, thinks the pound is going to feel the effects.

"Think about this: thirty percent of British exports goes to the euro zone, and just ten percent to the U.S.," he told CNBC's Melissa Lee. "From that point of view, there's no doubt the U.K. would be very vulnerable to a European slowdown or recession."

Woo wants to sell the pound against the dollar at 1.58 with a stop at 1.61, a near term target of 1.54, and a medium term target of 1.50.

"The nice thing about this trade is that a lot of investors have been fleeing the euro into the pound," he says. "To some extent, investors are likely to be disappointed because I think it's very unlikely the U.K. is going to be the safe haven for the euro crisis."

As for the euro itself, Woo thinks it has plenty of room to move lower - not least because a survey of his firm's hedge funds clients shows that many of them are negative on the currency, but few have sold the euro short.

You can watch the discussion on this videotape.

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