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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.
“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.”