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China Repo Rates Diverge On Monday

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-One-week implied vols for EUR/USD sit almost exactly inline with the 2018
average, although the contract added 0.9 vol points last Thursday when first
capturing the ECB rate decision and presser. The move supports an
implied/realised vol premium of around 0.5-0.6 points heading into the meeting.
-The added risk premium for GBP assets is clear: while EUR/GBP and EUR/USD 1w
implied vols aren't too dissimilar (6.9600 vs. 7.2150), the gap really opens up
further out. EUR/GBP 3m implied vols trade 1.3 vol points above the parallel
EUR/USD measure, the largest spread between the two since November 2017.
-This 'Brexit premium' reflects the continued political uncertainty dogging the
GBP. Paddy Power as recently as yesterday were offering odds of 2/1 on a Tory
leadership contest taking place by the end of 2018 and the odds continue to
shorten (the same bet was 7/2 last week). However, reports this week suggest the
PM's support is stronger (or, opposition is weaker) than seen previously, with
rival factions within the party withdrawing amendment challenges in parliament.
MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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