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Traders are piling into bets that Wednesday’s Budget will push the pound lower against the dollar, on fears that chancellor Rachel Reeves’ tax-raising measures could hurt the UK’s already-weak economic growth. Trading volumes in put options, used to speculate on or hedge against a fall in the pound, have outstripped those of bullish call options by more than four to one over the past week, according to derivatives firm CME Group.
That rush of bets on weaker sterling is “pointing to a market that is well positioned for a challenging outcome” for the pound, said Dominic Bunning, head of G10 FX strategy at Nomura. Weaker than expected economic growth and a fall in inflation in recent weeks have already encouraged traders to intensify their bets on interest rate cuts, which weigh on the attractiveness of a currency.
Many investors think sterling, which is close to its weakest level against the dollar since April at about $1.30, could suffer further at the Budget if Reeves’ tax and spending plans darken the economic outlook — or if they are poorly received by investors already skittish about excessive government borrowing and the Labour leadership’s ability to push through its economic plans.
“It is hard to see how Reeves delivers an outcome which looks bullish [for] UK growth, in a way which would favour the pound,” said Mark Dowding, fixed income chief investment officer at RBC BlueBay Asset Management, adding that the risk of a negative Budget putting pressure on the Labour leadership could also push the pound lower. Dowding has been betting the pound will weaken against the euro — against which it hit a more than two-year low this month — and the dollar in recent weeks, primarily through currency forwards, another common type of contract.
Some investors are also hoping for measures that will actively push down on inflation, such as reducing value added tax on energy bills. That could weigh on the pound by clearing the way for swifter Bank of England rate cuts.
Sterling puts expiring on Budget day are also significantly more expensive than calls, CME data shows, suggesting that traders think Reeves’ tax plans are more likely to be greeted by sterling weakness than strength. This so-called skew is at its most pronounced since January, when traders were positioned for a period of sterling weakness around the inauguration of US President Donald Trump. The dollar, which then tumbled over the first half of the year, has stabilized against the pound and other currencies in recent months.
“We are seeing people trade sterling puts more intensively,” said Chris Povey, head of FX options at CME Group. However, if Reeves is able to create sufficient fiscal headroom for herself, dispel fears of further tax rises next year and deliver better news on growth, sterling could rally, say analysts.
The Budget could serve as a “release valve” for the pound, said Kamal Sharma, director of G10 FX strategy at Bank of America. “[It is] the single most significant binary event of the year for sterling.” Others warn that concerns over government debt levels could knock sterling, given the doubts over the amount of money Reeves can raise without increasing income tax, as had previously been planned before a U-turn earlier this month.
“If the market does not see enough signs of fiscal consolidation and credibility,” Nomura’s Bunning warned, there is a risk that the pound sells off with long-dated gilts, “a tie-up that has become a bit more frequent in recent years.” He pointed to weakness in sterling assets in recent weeks on concerns about a potential challenge to Prime Minister Sir Keir Starmer from the left of the ruling Labour party.
“I haven’t heard anyone say good news about sterling or the UK in the last three months,” said Steve Englander, head of FX research at Standard Chartered, pointing to the UK’s “undynamic economy”, high government spending and its limited revenue-raising options given its promises not to raise taxes such as income tax and VAT. The world of technology is constantly evolving, with new advancements and innovations being made every day. One of the most exciting developments in recent years is the rise of artificial intelligence (AI) and machine learning.
AI refers to the ability of machines to perform tasks that typically require human intelligence, such as visual perception, speech recognition, decision-making, and language translation. Machine learning is a subset of AI that involves training machines to learn and improve from experience without being explicitly programmed.
One of the key areas where AI and machine learning are making a significant impact is in the field of healthcare. These technologies have the potential to revolutionize the way medical diagnosis and treatment are conducted, leading to improved patient outcomes and more efficient healthcare delivery.
One of the most promising applications of AI in healthcare is in medical imaging. AI algorithms can analyze medical images such as X-rays, MRIs, and CT scans to help doctors detect and diagnose diseases more accurately and quickly. This can lead to earlier detection of conditions such as cancer, allowing for timely treatment and better chances of recovery.
AI is also being used to develop personalized treatment plans for patients based on their individual genetic makeup and medical history. By analyzing large amounts of data, AI algorithms can identify patterns and trends that can help doctors tailor treatments to the specific needs of each patient, leading to more effective and targeted therapies.
Another area where AI is making a significant impact is in drug discovery and development. AI algorithms can analyze vast amounts of data to identify potential drug candidates and predict their efficacy and side effects. This can help pharmaceutical companies streamline the drug development process, leading to faster and more cost-effective drug discovery.
In addition to improving diagnosis and treatment, AI is also being used to enhance the overall patient experience. Chatbots powered by AI algorithms can provide patients with personalized health advice, schedule appointments, and answer questions about their health conditions. This can help reduce the burden on healthcare providers and improve access to care for patients.
While the potential benefits of AI in healthcare are vast, there are also challenges that need to be addressed. One of the key concerns is the need to ensure the privacy and security of patient data. As AI algorithms rely on large amounts of data to function effectively, there is a risk of data breaches and misuse of sensitive information.
Another challenge is the need to ensure that AI algorithms are transparent and unbiased. There is a risk of algorithmic bias, where AI systems may inadvertently perpetuate existing disparities in healthcare outcomes. It is crucial to develop and implement ethical guidelines to ensure that AI is used responsibly and equitably in healthcare.
Overall, the rise of AI and machine learning in healthcare holds great promise for improving patient care and advancing medical research. By harnessing the power of these technologies, we can revolutionize the way healthcare is delivered and ultimately improve the health and well-being of people around the world.
