Chancellor Rachel Reeves faces extra pressure ahead of tomorrow's Budget as traders bet against the British pound with analysts claiming "they haven't head any good news".
Financial markets have positioned decisively against sterling before November 26's fiscal statement, with bearish wagers significantly exceeding optimistic positions.
Derivatives firm CME Group reports that trading activity in put options, instruments employed for speculation or protection against currency declines, has surpassed call option volumes by a ratio exceeding four to one during the previous week.
This surge in negative positioning "is pointing to a market that is well positioned for a challenging outcome" for sterling, according to Dominic Bunning, head of G10 FX strategy at Nomura.
Traders are betting against the British pound
|GETTY
Market participants harbour concerns that the Chancellor's reported revenue-raising tax proposals may damage Britain's already fragile economic growth.
Sterling trades near its most vulnerable position since April, hovering around $1.30 versus the American currency.
Market professionals express scepticism regarding the Chancellor's capacity to present policies that boost gross domestic product (GDP) growth while addressing investor anxieties about state debt levels.
"It is hard to see how Reeves delivers an outcome which looks bullish [for] UK growth, in a way which would favour the pound," Mark Dowding, fixed income chief investment officer at RBC BlueBay Asset Management, told The Financial Times.
Traders think the pound is set to weaken | PAHe added that potential negative reception of the Budget might put pressure on the Labour Government's leadership, further undermining sterling. The currency recently touched its lowest point against the euro in over 24 months.
Market pricing for options expiring on Budget day reveals puts commanding substantial premiums over calls, indicating traders anticipate the Chancellor's fiscal plans will trigger currency weakness rather than gains.
This pricing disparity represents the most extreme positioning since January, when market participants prepared for potential sterling volatility surrounding Donald Trump's presidential inauguration.
"We are seeing people trade sterling puts more intensively," confirmed Chris Povey, head of FX options at CME Group.
Mark Dowding of RBC BlueBay Asset Management has wagered on sterling depreciation versus both the euro and dollar, predominantly utilising currency forward contracts.
Recent disappointing expansion figures and declining inflation have intensified expectations for interest rate reductions, diminishing the currency's appeal.
Forecasts from the Office for Budget Responsibility (OBR) have downgraded UK GDP growth over the next five years in another blow to Ms Reeves.
Certain investors anticipate measures that could suppress price pressures, including potential VAT reductions on energy costs, which might accelerate Bank of England rate cuts.
The City is set to be impacted by the Chancellor's reforms | PA"I haven't heard anyone say good news about sterling or the UK in the last three months," observed Steve Englander, head of FX research at Standard Chartered.
He cited Britain's "undynamic economy", elevated state expenditure and constrained revenue generation given commitments against raising income tax and VAT.
Nevertheless, Kamal Sharma, director of G10 FX strategy at Bank of America, suggested the Budget might act as a "release valve" for sterling, calling it "the single most significant binary event of the year for sterling."
The Chancellor will give her Budget statement to the House of Commons at 12:30pm tomorrow (November 26).