Traders bet against pound as budget looms

Currency traders are increasingly betting against the pound ahead of Wednesday’s budget, where Chancellor Rachel Reeves is expected to announce plans that could lead to lower future interest rates.

The shift reflects increasing anxiety over the UK government’s public finances and the possibility of big tax increases. It also reflects concern over how the market might react to the government’s new fiscal framework.

Data from CME Group shows a sharp rise in demand for put options, which are used to speculate on or hedge against a fall in sterling. Over the past week, puts have outweighed bullish call options by four to one, a shift first reported by the Financial Times.

Matthew Ryan, head of market strategy at Ebury, warned investors to “brace for volatility in sterling this week.” He noted that the Chancellor faces a significant challenge in restoring market confidence.

Reeves is under pressure to present measures that stabilise public finances. At the same time, she must avoid further damage to growth during a fragile period for the UK economy. Earlier this month, she said she would “do what is necessary to protect families from high inflation and interest rates”.

Sterling under pressure ahead of the budget

The pound has weakened in recent months, down from $1.36 in mid-September to $1.31 today (25 November 2025), after hitting a seven-month low $1.30 earlier this month.

Traders are anxious that the chancellor won’t be able to rebuild her headroom. They also doubt she can raise it enough to meet the government’s fiscal targets in coming years.

Ryan added that uncertainty about the scale and structure of tax measures could lead to sharp market reactions.

According to the Financial Times, analysts say traders have been increasing their bets. They believe the budget will push the pound lower against the dollar.

News on Monday that the UK’s growth forecasts will be downgraded has further dampened the mood.

The large number of reports about possible budget measures in recent weeks hasn’t reassured the markets. An income tax hike was first expected, then ruled out.

Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, says that this “chaos” is costly. He says that inconsistent briefings have raised uncertainty and increased the risk of a negative market reaction.

A tax-heavy budget is likely to slow down growth, increasing the possibility that the Bank of England will cut interest rates in December and again in 2026.

Ipek Ozkardeskaya, Senior analyst at Swissquote, says Wednesday’s budget is “make-or-break” for sterling. Markets are watching to see if the BoE might step in to stop a gilt flare-up or cushion the economy if tax hikes hit hard.

Sterling steady but cautious in the run-up

Despite the growing uncertainty, sterling stayed steady on Monday, with EUR/GBP trading around 0.8805 after pulling back from an intraday high near 0.8819.

As Reeves prepares to deal with an estimated £20–30 billion fiscal gap. Investors widely expect the government to prioritise tax rises over spending cuts. The Budget will also come with new Office for Budget Responsibility (OBR) forecasts.

The Bank of England (BoE) will be keeping a close eye on the Budget, with a tax-heavy stance likely to weigh on domestic demand and strengthen the case for policy easing in the months ahead. Markets already see that a rate cut in December is more likely.

Germany’s November IFO survey showed a softer outlook. The Expectations index fell to 90.6 from 91.6, and the headline Business Climate slipped to 88.1. The remaining 13 economists forecast no change.

Eurozone data and global sentiment

Outside the UK, market sentiment has been influenced by eurozone developments and geopolitical risks. Germany’s November IFO survey showed a softer outlook. The Expectations index fell to 90.6 from 91.6, and the headline Business Climate slipped to 88.1.

Current Conditions moved up slightly to 85.6, but the small improvement didn’t change the overall picture of slow growth in Europe’s largest economy.Traders are also keeping a close eye on the US-brokered peace talks between Russia and Ukraine. These talks have contributed to steadier risk sentiment, although the outlook remains highly uncertain.

The British Pound was little changed on Tuesday. GBP/EUR stood at 1.13853 and GBP/USD at 1.31222. Markets are waiting for Wednesday’s Autumn Budget.

Goldman Sachs expects post-budget weakness

Goldman Sachs expects the Budget to weaken the Pound Sterling, not right away, but in the weeks that follow.

According to the bank, the key risk is that a significant fiscal tightening will lead to softer UK data and further Bank of England easing into early 2026.

Goldman added that sterling has become less reactive to fiscal headlines recently, suggesting the budget’s impact will be felt through growth and rates rather than another fiscal-premium shock.

Goldman further warned that options markets appear to be overpricing volatility for Budget day itself, even though recent UK fiscal announcements have tended to put more pressure in the days after rather than at the moment of release.

With Goldman’s economists expecting three BoE rate cuts across the next four meetings, the bank sees the risk shifting toward sterling underperformance once investors fully digest the Budget.

Conclusion

Market participants are adopting a cautious position ahead of the Budget, with the recent positioning described as “the most extreme” since January. Traders at Nomura noted the fact that the dominance of put-option demand signals a market “well positioned for a challenging outcome” for the pound.

GB News One FX strategist said: “I haven’t heard anyone say good news about sterling or the UK in the last three months,” describing the UK economy as increasingly “undynamic”. These remarks show that market sentiment has already turned against the pound — meaning the Budget may need a positive surprise to help restore confidence in sterling.

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