Traders Bet on Weaker Pound Into UK Budget as Fiscal Risks Climb

Pound options suggest traders are growing increasingly concerned about the UK’s autumn budget, with November emerging as a focal point for bets against the currency.

Nearly 80% of euro-pound options expiring that month are skewed toward sterling losses, data compiled by Bloomberg show. Smaller wagers that still favor the euro stretch into late 2025 and early 2026.

Pressure is building on the UK currency before Chancellor Rachel Reeves ’ Nov. 26 budget, when she’s expected to lay out tax increases across pensions, property and income to plug the government’s funding gap. Bloomberg Economics predicts she will need to raise taxes by as much as £35 billion ($47.3 billion).

Sterling touched 0.87389 earlier on Tuesday versus the common currency, its lowest level since Aug. 7, before erasing the drop to trade little changed. The pound is set for a fourth monthly retreat against the euro, the longest losing streak in seven years.

According to George Saravelos , head of FX research at Deutsche Bank, the UK’s fiscal woes are outweighing any hawkish rates repricing from the Bank of England that might normally support the pound. The fact that traders see the European Central Bank as done cutting rates is also helping the euro.

Measures of pound weakness against the common currency are accumulating.

So called risk reversals — which gauge relative demand for bullish versus bearish exposure — show the most negative sentiment for sterling into year-end since April.

Flows point to traders positioning for further sterling weakness across tenors. Data from the Depository Trust & Clearing Corporation in the past month show options favoring the euro outpaced the rest by about three to one, an even stronger bias than the roughly two-to-one ratio seen during the summer.

A break above the July peak at 0.87689 would push sterling to its weakest level in two years, with the heaviest options positioning clustered between the 0.8750 and 0.8900 strikes, as well as significant wagers on a move beyond 0.90.

For now, options traders’ preference for expressing pound weakness via the euro is clear.

While sterling dropped to a more than two-week low on Monday versus the dollar, DTCC data show this month’s options flows are evenly split between the two currencies.