Currency Traders Brace for Pound Volatility Ahead of UK Autumn Budget

Hedging costs for sterling swings surged to record levels as options markets priced in heightened turbulence. One-week volatility measures for euro-pound trades hit a six-month high, while pound-Swiss franc protection costs neared four-month peaks. The widening gap between expected and actual volatility signals traders' willingness to pay premium prices for near-term coverage.

Bearish sentiment dominates sterling markets, with Depository Trust & Clearing Corporation data showing net short positions against the pound across major currency pairs. The euro-pound pairing has emerged as the cleanest proxy for UK risk, avoiding the noise of US economic data that complicates dollar-based trades.

Wednesday's inflation surprise—marking the first decline in seven months—failed to stem the pound's slide. Money markets paradoxically priced in deeper Bank of England rate cuts, suggesting fiscal concerns now outweigh monetary policy in currency valuations. Friday's budget rumors triggered fresh chaos across British financial markets.