### POV: CHANGING TIDES FOR STERLING..........>

CABLE: ### POV: CHANGING TIDES FOR STERLING

-Bullish Brexit headlines have sent GBP higher this week, with EUR/GBP extending

losses below the 200-dma. Despite this, many remain cautious of a sustained

recovery in GBP after previous hints of 'Brexit breakthroughs' failed to deliver

as Tory infighting undermined any progress.

-However, there are signs that the market's fear of a worst case 'No Deal

Brexit' are dropping quickly. Demand for GBP/USD downside protection has fallen

sharply since the beginning of October. On Oct1, the market bought almost twice

as many GBP/USD put options as calls, but today, the inverse is true (P/C ratio

today is just 0.52). Reflecting this, the GBP/USD 1m SMILE curve (capturing the

much anticipated Nov21 date) has flattened materially after being heavily skewed

toward OTM puts at the beginning of October.

-Knock-in strategies may become attractive to keep upfront hedging costs low (1m

implied vol trades 1.5 points above the YTD average). At present, a 1m GBP/USD

call option with a 1.30 strike knocking in at 1.33 (just above September highs)

costs 66 GBP pips vs. 80 pips for the equivalent vanilla structure.