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The British pound is holding its own, despite enduring fears about the country's fiscal backdrop.
Over the past month, Pound sterling has risen against the majority of the G10 most heavily traded and liquid currencies in the world.
In fact, only the U.S. dollar and Swiss franc have put in a stronger performance than the pound, which will surprise many readers wary of the UK's difficult fiscal position.
"We expect GBP to trade well over the coming weeks," says a currency strategy note from Morgan Stanley, released Monday.
The pound's respectable performance belies the gloomy narrative that engulfs it.
Concerns about next month's budget are rife, as economists warn of a tax bonanza as Chancellor Rachel Reeves casts about for any possible revenues, with a risk that those tax hikes don't actually raise the intended amounts and actually compromise economic growth.
Nevertheless, the UK will be buttressed by a relatively strong economic performance heading into the event.
"Longer term, our economist notes that UK private capex is up by 3%Y and cyclical productivity growth is rising sharply," says Morgan Stanley.
Above: GBP performance on a one month timeframe.
"UK economic performance continues to be steady but unspectacular," says a weekly economics briefing from Natwest Bank.
"As expected, growth has slowed down from the pace seen in the first half of the year, but with the labour market now stabilising and the drag from higher rates slowly easing, the economy can likely keep up the current modest pace of growth," it adds.
The pound to euro exchange rate perhaps reflects this slightly improved sentiment. Having fallen steadily through most of the year it has since edged up half a per cent on where it was one month ago, trading at 1.15.
The pound to dollar exchange rate - the benchmark pair - is nevertheless down 1% on the month, at 1.3307, courtesy of the broader USD comeback of recent weeks. However, over the course of the year, it holds a 7.0% gain.
Could a lot of bad news be in the price of the pound?
Pound Sterling Live is not short of content warning about the risks the UK currency faces in the coming weeks, but we wonder whether it has already absorbed as much risk premium as is warranted.
If so, then there is scope for a recovery against the euro and dollar to build over the coming weeks, while it can press an already established uptrend against others such as NZD and CAD.
Global bond yields are falling as demand for bonds increases. The UK bond yield - or gilt yield - is leading the way lower, meaning the cost of government borrowing is falling.
Above: UK ten-year gilt yields are retreating again.
This makes for a welcome bit of news for Chancellor Rachel Reeves who must find new ways to pay for these debt costs, and for the pound.
The big risk for sterling is an unruly surge in gilt yields as markets baulk at the budget. We have seen the pound drop as yields spike at various points over recent months and most famously during the fabled Liz Truss mini-budget.
The current trend of falling yields implies fears about a repeat of this during November 26's budget are fading.
"Once we get more certainty about the budget in November, the volatility in gilts should ease, which would then help the risk premium compress," says Michiel Tukker, Senior European Rates Strategist at ING.
Tukker adds "there's still room" for further declines in gilt yields.
Fading fiscal fears can put a floor under the pound.
Above: The UK has shed jobs since Reeves took over, the result of a rise in employer taxes.
Positioning is also helpful. GBP weakness against the EUR and USD means a great portion of the market is already engaged in bets against sterling. When the trade becomes crowded, it starts to lose momentum and becomes vulnerable to large numbers exiting the trade, which inevitably triggers a rebound.
"I do think the market is short pounds and I do think it is a difficult position to run given the setup, so seeing sterling squeezes," says a note from JP Morgan's trading desk in London.
"Sterling has had a solid week against G10 peers so far," says Antonio Ruggiero, Senior FX Strategist at Convera. "The heavy build-up in GBP short positioning over recent months tends to trigger short squeezes - even when data underwhelms, as long as it’s not catastrophically weak."
Last week, it was confirmed that the economy effectively stalled in August; however, on a rolling 3-month basis, it stands to generate a decent growth rate for the third quarter, confirming some momentum into the November 26 budget.
"The rebound in real economy data, manufacturing surged by 0.7% in the month, alongside continued Gilts outperformance, as the UK Chancellor preaches fiscal rectitude at the IMF ahead of the 26 November budget, is providing a degree of GBP resilience," says Jeremy Stretch, FX strategist at CIBC Capital Markets.
So although risks still abound and nerves will be piqued into next week, the pound looks ready to stand its ground, and if Reeves can negotiate the budget unscathed, pound sterling could be a candidate for a year-end rally.
"The distribution of risks looks more balanced heading into the Budget but we suspect GBP will struggle to rally meaningfully until the event risk has passed," says Kamal Sharma, FX analyst at Bank of America.