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.