"Data from CME Group shows trading volumes in put options - contracts that profit from a fall in the pound - have outpaced bullish call options by more than four to one over the past week. The surge suggests investors are bracing for a Budget that could push sterling lower. Dominic Bunning, head of G10 FX strategy at Nomura, said the pattern "points to a market that is well positioned for a challenging outcome for the pound.""
"The pound, already close to its weakest level against the dollar since April, traded at $1.312 on Tuesday, after weeks of soft economic data and falling inflation encouraged traders to price in earlier Bank of England rate cuts - typically a drag on a currency. Investors are worried that Reeves' expected package of tax rises will darken the growth outlook or undermine confidence in the government's ability to manage its fiscal position."
Currency traders have increased bearish bets against sterling ahead of the Budget, with put option volumes outpacing calls by more than four to one over the past week. The pound traded near its weakest level against the dollar at $1.312 after soft economic data and falling inflation prompted expectations of earlier Bank of England rate cuts. Investors fear Rachel Reeves' expected tax rises could darken growth prospects or undermine fiscal confidence, while potential inflation-reduction measures could hasten rate-cut expectations. Markets priced sterling puts expiring on Budget day far more expensively than calls, signaling a skew toward anticipated weakness and volatility.
Read at Business Matters
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