Traders place nearly £6bn against pound after Reeves Budget, signaling renewed currency jitters

Traders have piled into bets against the pound, taking the total value of short positions to almost £6 billion—the highest level in six years—as markets weigh the fiscal and growth outlook after Chancellor Rachel Reeves' Budget.

New data from the Commodity Futures Trading Commission show there were more than 93,000 net bets against sterling, with sell contracts rising rapidly since the summer when speculation over Reeves' tax-raising Budget began in earnest. The US regulator tracks how traders position themselves in futures contracts and the tally points to a broad bearing that the currency could weaken further if UK policy diverges from others.

Shorting sterling is a strategy that profits if the currency falls, but incurs losses if it rises. The latest round of bets underscores a cautious view among some investors that the pound could weaken again as the UK faces higher borrowing costs and slower growth.

The Bank of England last week cut interest rates for the sixth time since summer 2024, from 4% to 3.75%, a move that makes the pound less attractive to hold and raises questions about how much further policy easing will be needed as growth slows. Analysts say additional rate cuts are likely next year, which could weigh on the currency further.

“Added to lower rates in the UK are concerns about its fiscal position, slow growth and productivity, and the possibility that politics could re-enter the fray in the form of a leadership challenge,” said Jane Foley at Rabobank. The prospect of political disruption alongside a softer growth outlook complicates the path for the pound and keeps speculative positioning elevated.

Investors are also weighing the state of the public finances and the potential for more upheaval around fiscal policy and leadership if Keir Starmer faces a leadership challenge after May's local elections. Reeves has clobbered the economy with an extra £66 billion of taxes since becoming Chancellor, including a £25 billion raid on employer National Insurance Contributions, while policy shifts such as a higher minimum wage and ongoing debates about taxes on earnings have dented business confidence. Unemployment sits at 5.1%, a five-year high, and while inflation, as measured by the Consumer Prices Index, slowed from 3.6% in October to 3.2% in November, it remains well above the Bank of England's 2% target.

The government is projected to increase borrowing to fund welfare measures, with debt expected to rise from about £2.8 trillion this year to roughly £3.5 trillion in 2031, according to the Office for Budget Responsibility. The forecaster also estimates the interest burden on that debt will total about £750 billion over the same six-year period, a figure the OBR says would be enough to fund several years of NHS and social care spending.

A weaker pound can help exporters and bolster certain sectors, but it also raises the price of imported goods and raw materials, potentially fuelling inflation and limiting the scope for further rate reductions. In the near term, markets appear to be pricing in a path of continued policy easing and slower growth, with currency dynamics closely tied to UK fiscal developments and external rate differentials.

Investors and traders will be watching upcoming data releases and political developments for signs that the UK can regain stability and growth, or whether the pound remains under pressure as policy diverges from other major central banks. As the year closes, the balance of risks for sterling remains tilted toward further volatility, driven by the interplay of fiscal policy, monetary easing expectations, and ongoing political uncertainty.