Wednesday was the busiest day for pound options trading since the currency slumped toward an all-time low in 2022, an omen of deepening jitters around the UK currency.
Trading soared to 13.7 billion pounds ($16.9 billion) on Jan. 8, about triple that of the previous day, Depository Trust and Clearing Corp. data showed. It was the heaviest volume since Sept. 23, 2022, when the pound approached its weakest ever level as then-Prime Minister Liz Truss’s disastrous mini-budget jolted investors.
Chunks of the positions focused on a weaker pound, with some targeting a fall to as low as 1.15 — a 7% drop from current levels — according to Nomura International Plc. Hedge funds also piled into downside put options for cable, traders said. The currency pair fell Thursday to its lowest level since November 2023.
“This year has ushered in significant market volatility with the UK in focus,” said Sagar Sambrani, a senior foreign-exchange options trader at Nomura in London. “Drawing a parallel to the ‘fiscal sustainability’ concerns from 2022 and the resulting currency selloff,” digital options “targeting the 1.15 to 1.19 region in the three- to six-month tenors have been extremely popular plays.”
Euro-sterling one- to three-month call options targeting 0.85-0.87 were also in focus, Sambrani said.
Hectic trading in the $300 billion-plus currency options market echoed a spike in activity across gilts on Wednesday, when yields jumped to their highest in more than a decade. Worries around inflation and debt sustainability are bludgeoning sentiment on UK assets, compounding concerns about potential US tariffs and their impact on the economy.
Sterling fell more than 1% at one point on Wednesday to the lowest since April. The price to hedge the pound’s downside over the next week, compared with its upside, surged. Three-month implied volatility, a measure of expected movement over that time period, jumped to its highest level since April 2023.
Sterling traders are now bracing for US payrolls data due on Friday. Continued strength in the American labor market would add pressure for US yields to push higher and bolster the greenback against the pound.
