Institutional investors are divesting from the pound at an unprecedented rate, coinciding with Chancellor Rachel Reeves' anticipated budget adjustments aimed at achieving fiscal restraint. Over the last three weeks, the UK currency has faced its highest outflows in more than two years, attributed to uncertainty surrounding the economy and expectations of Labour’s pursuit for a budget surplus by 2030. Despite fluctuating markets, some hedge funds are betting on the pound's decline while others, including asset managers, hold optimistic positions, highlighting a divided outlook that is sensitive to the impending fiscal announcement.
Institutional investors have rapidly offloaded the pound, marking the fastest outflows since 2023, amidst fears about spending cuts to restore fiscal discipline.
The cuts are intended to fulfill Labour's commitment to a budget surplus by 2030, while market sentiment remains fragile and risks are under-priced.
Analysts express concern about complacency in the foreign exchange volatility market, suggesting that market sentiment is tilted towards expectations of a weak fiscal outcome.
The pound, while steady against the dollar, has experienced declines against the euro as investors remain cautious ahead of the upcoming fiscal statement.
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