Cable is the most over-valued G10 currency versus the dollar (refer above chart). Indeed, cable is more expensive versus 2Y rate spreads than at any point in the last five years. Fair-value currently languishes at 1.15, more than two sigma below the spot rate (refer above chart). GBP is consequently one of the most attractive currencies to sell for an extension of the dollar’s interest rate rally.
There is also the strong domestic case to re-sell GBP insofar as:
1) The economy is now more clearly slowing in response to an inflation drag on consumption and underlying business caution due to Brexit. Growth in Q1’17 is expected to be only half the 2.9% recorded in Q4’16. High hopes for BoE rate hikes this year have been crushed.
2) The government is on course to trigger Article 50 by the middle of the month despite a setback in the House of Lords for its enabling legislation Q1 over Article 50. Investor confidence is vulnerable as it should become apparent.
All these fundamental driving forces of GBPUSD are factored in OTC FX markets.
The negative delta risk reversal numbers are bidding for downside risks, while IV slews are also substantiating this stance as the hedgers' interests are stretched towards OTM put strikes.
While risk reversals of 6m tenors also indicate the high degree of bearish risks, this would imply that the puts are relatively costlier than the call options, while 6m IV skews are the evidence of the hedgers’ interests of OTM put bids.


Trump to Swear In Kevin Warsh as New Federal Reserve Chair Amid Inflation Concerns
Trump’s "Shock and Awe" Agenda: Executive Orders from Day One
Uruguay Central Bank Holds Interest Rate at 5.75% Amid Inflation and Oil Price Concerns
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge
RBA Raises Interest Rates to 4.35% Amid Rising Inflation Risks and Middle East Tensions
Moody's Upgrades Argentina's Credit Rating Amid Economic Reforms
Energy Sector Outlook 2025: AI's Role and Market Dynamics
South Korea Central Bank Holds Interest Rates Steady Amid Inflation Concerns
Croatia Weighs Ante Zigman for Central Bank Governor Role in Key ECB Transition
Trump Faces Pressure as Fed Chair Kevin Warsh Takes Over
China Keeps Loan Prime Rates Steady for 12th Month as PBOC Signals Cautious Policy Approach
U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures
BOJ Governor Ueda Warns Oil Price Shock Could Trigger Persistent Inflation
U.S. Stocks vs. Bonds: Are Diverging Valuations Signaling a Shift?




