GBP: GBP/USD Extends Gains as Pair Remains Coupled to Risk

GBP's mild outperformance early Tuesday keeps the pair tilted toward new cycle highs, with GBP/USD's 1.3247 print today the highest since March 2022. GBP/USD's bull run sees higher highs printed in 12 of the past 14 sessions, opening 1.3261 as next resistance.

• Moves come despite the relatively contained moves in the spread between year-end Fed and BoE implied rates (96bps for Fed, 41bps for BoE - as has been the case for much of August), with GBP/USD far more closely tied to broader risk and, in particular, US equities.
• The sharp recovery for the e-mini S&P off the 200-dma in August coincided with the >500 pip rally in GBP/USD, and the index pressing toward cycle highs is supporting GBP vols, with 1m holding above 7 points as the contract captures the September BoE decision (Sept 19th).
• Despite the fade off mid-July highs in the GBP net position (still long ~30% of open interest), options markets remain cognizant of the upside risk - GBP/USD 3m risk reversals are further reversing the premium for put vol over calls, which has persisted since March 2020 and the onset of the COVID pandemic in March 2020.