Currency traders pay record fees to hedge against pound swings ahead of UK Autumn Budget
The post Currency traders pay record fees to hedge against pound swings ahead of UK Autumn Budget appeared com. Currency traders are spending more money than usual to shield themselves from sudden moves in the British pound as the UK prepares for its Autumn Budget on November 26. The cost of short-term insurance against these swings has jumped to heights not seen in months. Options contracts covering one week now show traders expect more turbulence ahead. The euro-pound pairing saw the biggest jump, with one-week volatility measures hitting a six-month peak. Protection costs for pound-Swiss franc trades climbed near a four-month high, while pound-dollar hedging reached levels last recorded in early September. The gap between expected volatility and actual price movements in euro-pound now stands at its widest point since April. This suggests traders are ready to pay extra for near-term coverage. Bearish bets mount against sterling Trading patterns over the past month reveal a gloomy outlook for the pound. Records from the Depository Trust & Clearing Corporation show more bets against the currency than for it, in trades involving both the euro and the dollar. The euro trades picked up speed in recent days. Many traders view this pairing as a simpler way to bet on UK-specific troubles, since dollar trades get tangled up with American economic news and reports. Wednesday brought data showing UK inflation dropped in October, marking the first decline in seven months. Despite this, money markets increased their expectations for Bank of England rate cuts. For currency traders, this signals that budget worries now matter more than central bank policy. British markets fell into fresh chaos on Friday as budget rumors sparked concern about the nation’s financial health. Mixed signals about tax policy caused wild swings in government bonds and the pound. Questions mounted about whether the government can tackle the country’s rising debt while keeping its campaign promises to voters and maintaining support.
