Image © Adobe Images
For the British pound, there is a growing sense the "Negatives are in the Price".
The GBP has been "pounded" but many negatives are in the price, says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.
His view is made in the approach to the Bank of England's interest rate decision and Monetary Policy Report, due midday London time, which is arguably the week's highlight for the UK currency.
The odds of a rate cut according to OIS money markets are roughly at 50/50, but the odds of a cut being delivered by the end of the year sit at 100%, meaning we get one today or next month.
Odds weren't always this high: just two weeks ago, there was no cut baked into financial markets owing to the view that inflation was simply too high to cut interest rates.
It's this steady increase in bets of an interest rate cut coming before the end of the year that has battered sterling: the pound to dollar exchange rate has fallen 5.2% since its mid-September high at 1.3726.
"The GBP has sold off... its weakness seems consistent with the latest dips in UK rates and gilt yields," says Marinov.
Image courtesy of Goldman Sachs.
Above: Markets see a deeper profile for Bank Rate than they did just two weeks ago. This weighs on gilt yields, and the pound.
The pound to euro exchange rate has fallen 2.0% in this time.
Sterling's slide confirms the grip interest rate expectations have on FX markets, which makes the Bank of England's decision, guidance and new forecasts of great importance to the outlook.
The question is, how much more can the Bank encourage the market to raise bets for interest rate cuts? Given the hefty readjustment of late, there's a sense that there's a high bar to cross.
FX strategists at Barclays say a cut by the Bank of England this week is unlikely to move the terminal Bank Rate much below 3.25% (from c.3.35% currently).
The policy meeting will struggle to "validate the already very dovish market expectations and thus could prop up the beleaguered GBP," says Marinov. "A lot of negatives are in the price of the currency."
If the pound were to rally in response to the Bank of England's decision and guidance, we would expect gains to be relatively shallow, after all, the budget is still ahead of us.
The November 26 budget is highly anticipated by markets and this should keep enthusiasm to the pound limited. If there is to be a relief-style rally in sterling, it would likely come after this calendar risk event has passed.
"The bar for a credible Budget is by now not particularly high, the pound is cheap versus rates, and shorts are likely crowded," says Barclays, who are more optimistic on the pound's prospects "further out".