EXPERTS fear the Pound could collapse on Budget Day tomorrow in the “mother of all sell-offs”.
Chancellor Rachel Reeves is set to deliver Labour’s Autumn Budget on Wednesday where she is now expected to not raise income tax and National Insurance.
Currency traders are currently betting against the Pound in preparation for Reeves’ speech.
It comes as the Office for Budget Responsibility’s growth forecasts are expected to be downgraded every year until the current parliament ends in 2029.
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said there is “genuine anxiety” about the Pound.
He added: “Currency traders are hedging against potential Pound weakness ahead of tomorrow’s Budget, with bearish positioning at multi-year highs.
“They’re paying record premiums for volatility protection, particularly put options against the Dollar and Euro, amid fears that Chancellor Rachel Reeves’ tax hikes and spending increases could pressure Sterling – especially with a potential December Bank of England rate cut looming.
“This defensive positioning reflects genuine anxiety, not mere speculation. The September 2022 Truss-Kwarteng mini-Budget offers a stark reminder: the Pound plunged over 6% versus the Euro and 13% against the Dollar, hitting its lowest level since 1971. Markets fear we’re facing a Groundhog Day scenario.”
Riz Malik, Director at Southend-on-Sea-based R3 Wealth, said a Pound sell-off is coming.
He continued: “Traders are already betting against Sterling ahead of Budget day. There is a real prospect sterling could see the mother of all sell-offs if the markets give the Budget the thumbs down.
“The Chancellor also needs to be concerned about the bond market, which will be watching on closely. We lived through that in 2022 and we do not want a repeat.”
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, said the Pound is vulnerable.
She added: “If markets really dislike what they hear in the Budget, Sterling could be in for a seriously rough day. Sterling has already demonstrated considerable weakness recently against major currencies.
“Its vulnerability stems from high and rising debt, sticky inflation, heavy reliance on foreign capital and a policy mix that looks unwilling or unable to tackle the underlying structural deficit.
“Add to that rising yields also raise the government’s interest bill and worsen the deficit, which then feeds back into more concerns about the UK’s solvency and more pressure on the pound.
“A badly-received Budget could easily accelerate the existing weaker Pound trend rather than create a new one. That said, my own clients are not trying to trade Budget Day headlines. They are sitting tight, with diversified portfolios positioned to withstand shocks in both currency and bond markets.”
Patricia McGirr, Founder at Burnley-based Repossession Rescue Network, advised people to buy foreign currency now.
She continued: “If the Budget rattles the markets, the Pound could have a brutal day. Confidence is paper thin and Sterling will not wait politely for clarity. One wrong signal and we could see a slide that hurts anyone trading or travelling this week.
“If you need foreign currency, buy it now. Hope for calm, but prepare for chaos. When the markets panic, the Pound moves fast and never in your favour. Right now the Old Lady of Threadneedle Street isn’t watching, she’s clutching her pearls and praying.”
Photo by Singkai Lee on Unsplash
