OPTIONS: Larger FX Option Pipeline

OI data suggests short setting dominated through the Euribor greens on Monday, with only limited pockets of net long cover seen in that area of the strip. Net long cover then dominated in the blues.

• Euribor futures largely tracked movements in USD counterparts yesterday, with the markets continuing to digest Friday’s NFP release.
• ECB speakers (Lane, Rehn and Vujcic) added little new to the policy debate.
• OI data indicates that net short setting dominated for three consecutive sessions in Z5, H6 and M6 contracts as of Monday. 

The Economic Secretary to the Treasury, also known as the City Minister, Tulip Siddiq has resigned amid increasing scrutiny regarding her political and financial relations with the ousted Bangladeshi PM Sheikh Hasina, Siddiq's aunt. The gov't has confirmed that Parliamentary Under-Secretary of State for Pensions Emma Reynolds will take over as Econ Sec to the Treasury. Meanwhile, Torsten Bell - former chief exec of the left-leaning Resolution Foundation think tank - becomes a Parliamentary Secretary in the Treasury and Parliamentary Under Secretary of State in the Department for Work and Pensions. 

• The resignation of Siddiq, who also served as anti-corruption minister, comes as Chancellor of the Exchequer Rachel Reeves faces significant pressure amid rising gov't borrowing costs, a weakening pound, and declining fiscal headroom. Reeves' statement to the Commons earlier today gave little sign of what the gov't intends to do to try an assure markets.
• The UK gov't is already facing a slump in opinion polling support. The latest YouGov poll has Starmer's Labour party on 26% compared to the right-wing populist Reform UK on 25%). While Siddiq was a relatively junior minister the nature of her resignation could both tarnish Starmer's attempts to portray his gov't as graft-free, and sustain the political narrative of a gov't being led by events rather than setting the agenda. 

• The G10 FX themes present overnight, that of a softer US dollar and Japanese Yen are prevailing in late European trade Tuesday. Price action has seen EURUSD briefly climb back to the 1.0300 handle, rising 0.5% on the session. Higher German yields have been supportive of the single currency at the margin, while lower front-end yields in the US have been weighing on the greenback.
• The ICE USD index sits 0.6% lower on the session, and now 0.85% off the Monday highs, at 109.25 as market participants await the key CPI report tomorrow. It is clear that the Fed will hold in January, with the first plausibly “live” meeting not until March. But with pricing having shifted so quickly away from 2025 cuts, it’s a good juncture to assess whether markets have gotten too hawkish, with the greenback potentially vulnerable to a deeper correction.
• Broad pressure on core fixed income continues to weigh on the Japanese yen, with EURJPY extending its intra-day advance to 0.8% and now 260 pips above the Monday lows around the psychological 160.00 mark.