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Investing.com - The British pound remains in a "deepfreeze" ahead of the UK Budget announcement on November 26th, according to a new Bank of America analysis released Monday.
BofA analysts note that since the Budget date announcement, the pound sterling has traded in tight ranges, becoming "an afterthought in the FX world" and breaking down traditional market correlations that typically drive currency movements.
The upcoming Budget represents "the binary event of the year" for UK markets, with its outcome determining whether the pound can reestablish connections to its historical relationship patterns, the bank reports.
While options skew continues to show bearish sentiment toward the pound, BofA observes that recent news flow suggests increasing possibility of an upside surprise, making current EUR/GBP levels potentially attractive for hedging purposes.
The bank concludes that the "pressure valve release" following the Budget announcement could trigger a strong rally in the pound sterling, with certain scenarios potentially benefiting both the currency and UK government bonds (Gilts).
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