Core Viewpoint - Traders are betting heavily on a decline of the British pound against the US dollar ahead of the upcoming UK budget, with concerns that Chancellor Reeves' proposed tax increases may further weaken the already sluggish UK economic growth [1][2]. Group 1: Market Sentiment - The volume of put options for the pound has surged to over four times that of call options in the past week, indicating a strong bearish sentiment among traders [1]. - Nomura's G10 FX strategy head, Dominic Bunning, noted that the current wave of shorting the pound suggests that the market is prepared for severe outcomes for the currency [1]. - RBC BlueBay's Chief Investment Officer, Mark Dowding, expressed skepticism about Reeves' ability to present a plan that would positively impact UK growth and support the pound [1]. Group 2: Economic Indicators - Recent underperformance in UK economic growth, coupled with declining inflation, has led traders to increase bets on interest rate cuts, diminishing the currency's appeal [1]. - The pound is currently at its lowest level since April, around 1.30, and may face further declines if Reeves' tax and spending plans do not improve economic outlooks or investor confidence [1][2]. Group 3: Options Market Dynamics - The cost of put options expiring on the budget announcement day is significantly higher than that of call options, indicating that traders believe Reeves' tax plans are more likely to weaken the pound [2]. - The skew in options pricing is at its most pronounced level since January, reflecting traders' positioning against the pound's weakness [2]. Group 4: Fiscal Concerns - Concerns about the government's ability to raise funds without increasing income tax have led to skepticism regarding the fiscal measures that Reeves can implement, which may negatively impact the pound [2][3]. - Nomura's Bunning warned that without sufficient fiscal consolidation and signs of credibility, the pound could face significant selling pressure, potentially leading to a simultaneous decline in UK government bonds [3].

Core Viewpoint - The article discusses the fluctuations in currency markets, particularly focusing on the performance of the British pound against the US dollar, and highlights the impact of US inflation data and trade negotiations on global currency movements [1][2]. Currency Fluctuations - During the Asian trading session, the British pound showed significant negative volatility against the US dollar, with a decline of -0.62% over one day, the largest among major currencies [2][3]. - The Australian dollar and euro also experienced negative fluctuations, with the Australian dollar declining by -0.27% against the US dollar over one day [2]. British Pound Analysis - There is an increased demand for bearish options on the British pound, with the implied volatility for one-week and two-week put options at 7.6% and 7.7% respectively, following disappointing wage data [4]. - The UK Office for National Statistics reported a decrease in wage growth to 5.2%, the lowest since Q3 of the previous year, which was below economists' expectations of 5.3% [4][6]. Employment and Economic Policies in the UK - In May, the UK saw a reduction of 109,000 jobs, the largest monthly decline since May 2020, which exceeded expectations [6]. - The UK government has raised corporate wage taxes and minimum wage standards, effective from April, which may alleviate inflationary pressures by controlling rising prices [6]. Japanese Yen Performance - The Japanese yen experienced slight negative volatility of -0.05% over four hours, with the USD/JPY pair reaching a high of 145.28, the highest in over a week [7]. - The Bank of Japan's Governor indicated a delay in interest rate hikes due to insufficient confidence in achieving the 2% inflation target, which has weakened market expectations for policy normalization [7]. Australian and New Zealand Dollar Trends - Both the Australian and New Zealand dollars showed negative volatility patterns, reflecting cautious market sentiment towards risk assets amid ongoing trade negotiations and US inflation data [8].