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Options-implied Probability Leans to GBP/USD Improving into Results Day

GBP
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  • We noted yesterday the uptick in GBP/USD 2 month implied vols as election rumours and speculation began to circulate, and that move's extended following the confirmation of a July 4th polling date from Sunak yesterday.
  • While 2m vols are off lows, they're still well contained within the year's (and May's) range, mirroring the confidence with which polling markets are tracking a majority win for the Labour Party and signalling that this result is well priced in.
  • The front-end of the GBP/USD vol curve, covering maturities out to 12 months, has generally faded across May, led by USD vol, and has resulted in much lighter pressure on put vol over calls, evident in the upside for GBPUSD risk reversals, which look to close the gap opened by the mid-March sell-off.
  • The firming of front-end risk reversals has fed its way into implied pricing, resulting in a (very) modest bias to GBP/USD improvement into results day on July 5th:

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  • We noted yesterday the uptick in GBP/USD 2 month implied vols as election rumours and speculation began to circulate, and that move's extended following the confirmation of a July 4th polling date from Sunak yesterday.
  • While 2m vols are off lows, they're still well contained within the year's (and May's) range, mirroring the confidence with which polling markets are tracking a majority win for the Labour Party and signalling that this result is well priced in.
  • The front-end of the GBP/USD vol curve, covering maturities out to 12 months, has generally faded across May, led by USD vol, and has resulted in much lighter pressure on put vol over calls, evident in the upside for GBPUSD risk reversals, which look to close the gap opened by the mid-March sell-off.
  • The firming of front-end risk reversals has fed its way into implied pricing, resulting in a (very) modest bias to GBP/USD improvement into results day on July 5th: