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Healthy Demand for GBP Upside Hedging as Spot Tops 1.34

OPTIONS

Bucking yesterday's trend, currency hedging markets are busier Tuesday, with GBP options demand leading the way, closely followed by USD/CNY. In contrast, USD/JPY options activity is quieter than usual. Implied vol markets are extending Monday's minor move higher, with most G10 1m contracts adding just shy of 0.5ppts so far Tuesday. One standout is USD/JPY, which reflects quieter trading activity, as front-end vols retreat slightly.

GBP hedging activity is running high today, with GBP/USD's rise above $1.34 this week clearly stimulating demand for upside protection. This morning, over $3 in GBP/USD calls have traded for every $1 in puts - $1.3750 and $1.40 call strikes have drawn the most focus, with £200mln and £150mln notional crossing in calls at those strikes respectively this morning. Some of the larger structures crossing this morning look to be trades consistent with call spreads rolling off at the end of September - most notably a £105mln 1.32/1.33 call spread expiring on Sept 28th.

Elsewhere, markets continue to hedge against more broad CNY strength, with 6.7775, 6.78 and 6.80 USD/CNY puts trading in size across Asia-Pac and European morning hours.

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