GBP: No risk premium ahead of UK Budget – ING

The Pound Sterling (GBP) is in full wait-and-see mode ahead of tomorrow’s Budget announcement by Chancellor Rachel Reeves. There are two technical factors to consider ahead of a potential market-adverse reaction in the pound tomorrow, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Risks remain skewed to a move to 1.2800-1.2850

“First, there is no political risk premium priced into sterling at the moment, with our model returning a short-term EUR/GBP fair value at 0.834. Remember that in previous instances of political/gilt-related turmoil in the UK, the EUR/GBP risk premium was around 3-5%.”

“Secondly, the latest CFTC figures show speculators are still extensively long on the pound. As of 22 October, net-long GBP positions were the largest in G10 (32% of open interest), having resisted the rotation back into the dollar observed in other developed currencies.”

“GBP/USD continues to look vulnerable ahead of tomorrow’s Budget event and next week’s US election, and risks remain skewed to a move to 1.2800-1.2850.”