Sterling's asymmetry into the autumn statement

Positioning, carry, and the fiscal calendar are pointing the same direction for the first time in eighteen months. The risk is in the convexity.

For most of the past eighteen months, the three forces that drive sterling have been pulling against one another. Positioning was crowded one way, carry rewarded the other, and the fiscal calendar refused to cooperate with either. That standoff is now resolving.

Positioning has unwound to something close to neutral. Carry, after the latest repricing of the front end, finally pays to hold the currency rather than to fund with it. And the autumn statement gives the market a date to organise itself around, which is often all a directional move requires.

The risk, as ever, is not in the direction but in the shape. When three forces align, the move tends to be convex: slow to start, then sharply non-linear once a level gives way. We would rather own that convexity through options than chase it in the spot market after the fact.

When positioning, carry and the calendar finally agree, the move is rarely linear. The interesting part is the convexity.