OPTIONS: Larger FX Option Pipeline

Comments from Health Secretary Wes Streeting have added to speculation that the gov't could water down, or even fully reverse, its cuts to winter fuel payments for pensioners not in receipt of certain benefits. The Guardian reported on 5 May that the gov't is "rethinking its controversial winter fuel payment cut amid growing anxiety at the top of government that the policy could wreak serious electoral damage". Speaking to the BBC, Streeting denied that the policy is under formal review, but acknowledged that they are "reflecting on what the voters told us". 

• In the 1 May local council elections, the governing centre-left Labour party lost around two-thirds of the seats it was defending. The main winner was the right-wing populist Reform UK, while the centrist Liberal Democrats also performed well. Considering that the last time the councils were contested was 2021, when the centre-right Conservatives made significant gains as the COVID vaccine was rolled out, Labour's underperformance on 1 May becomes even starker.
• In an effort to save an estimated GBP1.4bln, Chancellor of the Exchequer Rachel Reeves announced the restriction in payments to those in receipt of pension credit and other benefits related to income.
• It is unclear whether a U-turn would be enough to revive Labour's flagging support, while it might also contribute to market jitters regarding Labour's commitment to its fiscal rules (note: Streeting said earlier the gov't was committed to the fiscal rules as-is)

Chart 1. Government Approval Ratings, %

Source: YouGov. Latest data 3-5 May

• EURGBP has again found some small resistance at the trendline (see chart), Merz Falling short in First Round Of Chancellor Voting has dampened the EUR somewhat, and Cable edging back towards its earlier high is also providing some pressure into the EURGBP.
• The Immediate support is still at that retracement level of ~0.8481, printed a 0.8482 and 0.8480 last Week.

(Chart source: MNI/Bloomberg).

• The Swiss Franc prints on the bottom of the G10 leaderboard today following Schlegel commentary this morning highlighting it has appreciated 'really a lot', referring to the CHF April move which has seen its REER push through 2024 highs. Schlegel is usually not known for such pronounced commentary on Franc valuations. Domestic sight deposit data recently did not indicate material SNB FX intervention.
• Today's weakness follows yesterday's Swiss April CPI, which came in at 0.0% Y/Y, 0.2pp below consensus (and 0.3pp below the SNB's Q2 forecast). While volatile travel-related services did have a particularly negative impact this time, the overall deceleration did appear broad-based.
• At 0.8259, USDCHF continues to trade below the key 0.8333 resistance, the 2023 low and breakdown point. Initial support stands at the late April lows around 0.8200, before cycle lows at 0.8040.
• Goldman Sachs think "risks are skewed to further CHF appreciation vs both EUR and the Dollar, especially if a recession starts to look imminent".