Chancellor Reeves sidestepped the biggest fiscal dangers, delivering limited near-term tightening while preserving headroom through backloaded tax hikes, NOMURA's FX analyst Dominic Bunning reports.

GBP shorts face near-term squeeze

"Chancellor Reeves avoided the major tail risks that we were worried about. Limited near-term tightening but larger fiscal headroom (via backloaded tax hikes) seems to be amongst the 'least bad' outcomes."

"Scope for GBP shorts – which have been among the most popular G10 FX positions – to retrace."

"GBP is not out of the woods yet. Backloading the tightening (until largely the next election!) still risks credibility and cyclical momentum is soft but we will look for better levels to re-engage with GBP underperformance trades."