###POV: GBP/USD PULLBACK SEEN AS JUST THE.....>

CABLE: ###POV: GBP/USD PULLBACK SEEN AS JUST THE BEGINNING BY OPTIONS MARKETS

-GBP's been buffeted by factors both political and economic this week, with odds

of PM May resigning (or being forced out) between October-December this year

touching the highest on record on Betfair's political exchange. This, allied

with weaker than expected inflation data, has prompted GBP/USD to touch 2018

lows. Options markets have taken note, with the GBP/USD 1m SMILE curve becoming

its most skewed toward OTM puts since at least the beginning of the year,

coinciding with 1m 10D butterflies today touching levels not seen since late

March.

-These bearish shifts in implied volatility measures come at odds with rates

markets, which still put a 25bps rate hike from the BoE in August at just under

80%, according to MNI's PINCH model. This may suggest GBP is becoming less

sensitive to monetary policy, and far more dependent on the ebb and flow of

Westminster. With the imminent Summer recess a prime opportunity for ministers

to court support among backbenchers for potential leadership campaigns, options

traders clearly see GBP as more political than ever.