Traders Buy Pound Protection on Policy, Election and War Risks
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Investors are adopting a more cautious approach to the pound, with options traders zeroing in on three distinct risks.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Investors are adopting a more cautious approach to the pound, with options traders zeroing in on three distinct risks.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Central bank meetings this week, local UK elections on May 7 and fallout from the Middle East war are showing up in different parts of the options market. But the trend is consistent: bearish-sterling positions make up nearly 60% of options against the dollar this month and more than 70% against the euro.Whatever the root cause, investors are paying up more often to protect against pound weakness than to position for a surge. That could herald a change in fortune for sterling, which has has gained roughly 1% against the dollar and 0.6% versus the euro since the start of the Iran war.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Policy risk is clearest in pound-dollar options as central banks wrestle with how to address higher energy costs. The contracts expiring on April 30 — which cover Federal Reserve and Bank of England meetings — are about a quarter bigger than those tied to the May election window. That suggests the pound-dollar currency pair is where investors are concentrating central bank risk.By contrast, anxiety over political turbulence and whether Keir Starmer might be pushed out as prime minister is primarily showing up via the euro. Options volumes around the local elections are more than double those in late April, and about four-fifths of the flow is bearish sterling. The Iran theme looks different. The largest premium concentrations, or upfront costs, in pound options flows sit beyond both the monetary policy and election dates, showing traders are using longer-dated protection for what they see as a persistent backdrop of elevated risk.While the hedges are tied to different time horizons, the overall message is that sterling remains a currency the market would rather protect against than own. That is also reflected in so-called risk reversals, which show investors are paying a premium for bearish-pound exposure against both the dollar and the euro across the curve.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.365 Bloor Street East, Toronto, Ontario, M4W 3L4© 2026 Financial Post, a division of Postmedia Network Inc. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.You can manage saved articles in your account.and save up to 100 articles!You can manage your saved articles in your account and clicking the X located at the bottom right of the article.