Sterling traders moved quickly to hedge against significant price swings on Wednesday, just ahead of Chancellor Rachel Reeves' first budget announcement.
Meanwhile, the Pound remained steady against both the Dollar and the Euro.
One-week implied options volatility, a key indicator of demand for protection against substantial Pound movements in the upcoming week, climbed to 10.375%, its highest level since March 2023.
The overnight increase from approximately 6.325% marked the largest one-day jump in one-week implied volatility since September 2022, when then-Prime Minister Liz Truss announced budget plans involving billions of Pounds in unfunded spending, which caused a crisis in UK markets, Reuters reports.
“It's budget day in the UK, and while these events rarely pose the sort of risks to price action that warrants real focus on positioning, this one is different,” said Pepperstone strategist Chris Weston.
“It is seen by some as a generational budget, that will define Chancellor Reeves' career and could significantly impact Keir Starmer’s public approval rating, which has been shot to pieces of late.”
The Labour Party's first budget in 14 years, set to be announced on Wednesday, will put an end to months of speculation regarding how much borrowing Chancellor Rachel Reeves and PM Keir Starmer will undertake for infrastructure investments and the impact on taxpayers.
Meanwhile, the Pound was down 0.1% for the day, trading at $1.3008.
In addition, implied volatility for one-week options, which allows traders to hedge against price risks related to the upcoming US presidential election, also increased for other currencies, though not to the same extent as for Sterling.
One-week Euro volatility reached around 6.285%, its highest level since early October, while one-week Yen volatility climbed to 16.495%, the highest since mid-August.
Sterling's one-week implied options volatility hit 10.375%, marking its highest point since March 2023 and indicating its largest single-day increase since September 2022.