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Options Markets Remain Pessimistic Despite Spot Stabilisation

  • Following a more tumultuous Wednesday session, GBP/USD is looking more stable, trading back to flat/minor positive territory to erase the ~30 pips losses suffered in Asia trade. Yesterday's price action saw the currency weaken while rate expectations marched higher (mimicking the inverse correlation noted in the wake of Truss' budget) - and despite the modest stabilisation in spot today, there remain underlying signs of fragility as markets continue to price in as much as 100bps of further tightening in 2023.
  • Front-end risk reversals underscore the deteriorating outlook for GBP in options space, with 1m RR falling further in favour of puts - touching the lowest level since late March today. In sympathy, DTCC tracked trade has favoured downside protection, with over $2.5 in puts trading for every $1 in calls so far today - as put strikes layered between 1.22 and 1.2355 take particular focus.
  • Downtrendline resistance sits just above at 1.2395, ahead of yesterday's highs at 1.2470. A break and close above here is required to steady the current bearish outlook.
MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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