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Traders are piling into bets that Wednesday’s Budget will push the pound lower against the dollar, on fears that chancellor Rachel Reeves’ tax-raising measures could hurt the UK’s already-weak economic growth.

Trading volumes in put options, used to speculate on or hedge against a fall in the pound, have outstripped those of bullish call options by more than four to one over the past week, according to derivatives firm CME Group. 

That rush of bets on weaker sterling is “pointing to a market that is well positioned for a challenging outcome” for the pound, said Dominic Bunning, head of G10 FX strategy at Nomura.

Weaker than expected economic growth and a fall in inflation in recent weeks have already encouraged traders to intensify their bets on interest rate cuts, which weigh on the attractiveness of a currency.

Many investors think sterling, which is close to its weakest level against the dollar since April at about $1.30, could suffer further at the Budget if Reeves’ tax and spending plans darken the economic outlook — or if they are poorly received by investors already skittish about excessive government borrowing and the Labour leadership’s ability to push through its economic plans.

“It is hard to see how Reeves delivers an outcome which looks bullish [for] UK growth, in a way which would favour the pound,” said Mark Dowding, fixed income chief investment officer at RBC BlueBay Asset Management, adding that the risk of a negative Budget putting pressure on the Labour leadership could also push the pound lower.

Dowding has been betting the pound will weaken against the euro — against which it hit a more than two-year low this month — and the dollar in recent weeks, primarily through currency forwards, another common type of contract.

Some investors are also hoping for measures that will actively push down on inflation, such as reducing value added tax on energy bills. That could weigh on the pound by clearing the way for swifter Bank of England rate cuts.

Sterling puts expiring on Budget day are also significantly more expensive than calls, CME data shows, suggesting that traders think Reeves’ tax plans are more likely to be greeted by sterling weakness than strength.

This so-called skew is at its most pronounced since January, when traders were positioned for a period of sterling weakness around the inauguration of US President Donald Trump. The dollar, which then tumbled over the first half of the year, has stabilised against the pound and other currencies in recent months.

“We are seeing people trade sterling puts more intensively,” said Chris Povey, head of FX options at CME Group.

However, if Reeves is able to create sufficient fiscal headroom for herself, dispel fears of further tax rises next year and deliver better news on growth, sterling could rally, say analysts.

The Budget could serve as a “release valve” for the pound, said Kamal Sharma, director of G10 FX strategy at Bank of America. “[It is] the single most significant binary event of the year for sterling.”

Others warn that concerns over government debt levels could knock sterling, given the doubts over the amount of money Reeves can raise without increasing income tax, as had previously been planned before a U-turn earlier this month.

“If the market does not see enough signs of fiscal consolidation and credibility,” Nomura’s Bunning warned, there is a risk that the pound sells off with long-dated gilts, “a tie-up that has become a bit more frequent in recent years”.

He pointed to weakness in sterling assets in recent weeks on concerns about a potential challenge to Prime Minister Sir Keir Starmer from the left of the ruling Labour party.

“I haven’t heard anyone say good news about sterling or the UK in the last three months,” said Steve Englander, head of FX research at Standard Chartered, pointing to the UK’s “undynamic economy”, high government spending and its limited revenue-raising options given its promises not to raise taxes such as income tax and VAT.

At a high level, ammonia seems like a dream fuel: It’s carbon-free, energy-dense, and easier to move and store than hydrogen. Ammonia is also already manufactured and transported at scale, meaning it could transform energy systems using existing infrastructure. But burning ammonia creates dangerous nitrous oxides, and splitting ammonia molecules to create hydrogen fuel typically requires lots of energy and specialized engines.

The startup Amogy, founded by four MIT alumni, believes it has the technology to finally unlock ammonia as a major fuel source. The company has developed a catalyst it says can split — or “crack” — ammonia into hydrogen and nitrogen up to 70 percent more efficiently than state-of-the-art systems today. The company is planning to sell its catalysts as well as modular systems including fuel cells and engines to convert ammonia directly to power. Those systems don’t burn or combust ammonia, and thus bypass the health concerns related to nitrous oxides.

Since Amogy’s founding in 2020, the company has used its ammonia-cracking technology to create the world’s first ammonia-powered drone, tractor, truck, and tugboat. It has also attracted partnerships with industry leaders including Samsung, Saudi Aramco, KBR, and Hyundai, raising more than $300 million along the way.

“No one has showcased that ammonia can be used to power things at the scale of ships and trucks like us,” says CEO Seonghoon Woo PhD ’15, who founded the company with Hyunho Kim PhD ’18, Jongwon Choi PhD ’17, and Young Suk Jo SM ’13, PhD ’16. “We’ve demonstrated this approach works and is scalable.”

Earlier this year, Amogy completed a research and manufacturing facility in Houston and announced a pilot deployment of its catalyst with the global engineering firm JGC Holdings Corporation. Now, with a manufacturing contract secured with Samsung Heavy Industries, Amogy is set to start delivering more of its systems to customers next year. The company will deploy a 1-megawatt ammonia-to-power pilot project with the South Korean city of Pohang in 2026, with plans to scale up to 40 megawatts at that site by 2028 or 2029. Woo says dozens of other projects with multinational corporations are in the works.

Because of the power density advantages of ammonia over renewables and batteries, the company is targeting power-hungry industries like maritime shipping, power generation, construction, and mining for its early systems.

“This is only the beginning,” Woo says. “We’ve worked hard to build the technology and the foundation of our company, but the real value will be generated as we scale. We’ve proved the potential for ammonia to decarbonize heavy industry, and now we really want to accelerate adoption of our technology. We’re thinking long term about the energy transition.”

Unlocking a new fuel source

Woo completed his PhD in MIT’s Department of Materials Science and Engineering before his eventual co-founders, Kim, Choi, and Jo, completed their PhDs in MIT’s Department of Mechanical Engineering. Jo worked on energy science and ran experiments to make engines run more efficiently as part of his PhD.

“The PhD programs at MIT teach you how to think deeply about solving technical problems using systems-based approaches,” Woo says. “You also realize the value in learning from failures, and that mindset of iteration is similar to what you need to do in startups.”

In 2020, Woo was working in the semiconductor industry when he reached out to his eventual co-founders asking if they were working on anything interesting. At that time, Jo was still working on energy systems based on hydrogen and ammonia while Kim was developing new catalysts to create ammonia fuel.

“I wanted to start a company and build a business to do good things for society,” Woo recalls. “People had been talking about hydrogen as a more sustainable fuel source, but it had never come to fruition. We thought there might be a way to improve ammonia catalyst technology and accelerate the hydrogen economy.”

The founders started experimenting with Jo’s technology for ammonia cracking, the process in which ammonia (NH₃) molecules split into their nitrogen (N₂) and hydrogen (H₂) constituent parts. Ammonia cracking to date has been done at huge plants in high-temperature reactors that require large amounts of energy. Those high temperatures limited the catalyst materials that could be used to drive the reaction.

Starting from scratch, the founders were able to identify new material recipes that could be used to miniaturize the catalyst and work at lower temperatures. The proprietary catalyst materials allow the company to create a system that can be deployed in new places at lower costs.

“We really had to redevelop the whole technology, including the catalyst and reformer, and even the integration with the larger system,” Woo says. “One of the most important things is we don’t combust ammonia — we don’t need pilot fuel, and we don’t generate any nitrogen gas or CO₂.”

Today Amogy has a portfolio of proprietary catalyst technologies that use base metals along with precious metals. The company has proven the efficiency of its catalysts in demonstrations beginning with the first ammonia-powered drone in 2021. The catalyst can be used to produce hydrogen more efficiently, and by integrating the catalyst with hydrogen fuel cells or engines, Amogy also offers modular ammonia-to-power systems that can scale to meet customer energy demands.

“We’re enabling the decarbonization of heavy industry,” Woo says. “We are targeting transportation, chemical production, manufacturing, and industries that are carbon-heavy and need to decarbonize soon, for example to achieve domestic goals. Our vision in the longer term is to enable ammonia as a fuel in a variety of applications, including power generation, first at microgrids and then eventually full grid-scale.”

Scaling with industry

When Amogy completed its facility in Houston, one of their early visitors was MIT Professor Evelyn Wang, who is also MIT’s vice president for energy and climate. Woo says other people involved in the Climate Project at MIT have been supportive.

Another key partner for Amogy is Samsung Heavy Industries, which announced a multiyear deal to manufacturing Amogy’s ammonia-to-power systems on Nov. 12.

“Our strategy is to partner with the existing big players in heavy industry to accelerate the commercialization of our technology,” Woo says. “We have worked with big oil and gas companies like BHP and Saudi Aramco, companies interested in hydrogen fuel like KBR and Mitsubishi, and many more industrial companies.”

When paired with other clean energy technologies to provide the power for its systems, Woo says Amogy offers a way to completely decarbonize sectors of the economy that can’t electrify on their own.

“In heavy transport, you have to use high-energy density liquid fuel because of the long distances and power requirements,” Woo says. “Batteries can’t meet those requirements. It’s why hydrogen is such an exciting molecule for heavy industry and shipping. But hydrogen needs to be kept super cold, whereas ammonia can be liquid at room temperature. Our job now is to provide that power at scale.”