Bank of Japan Signals Potential Rate Hike as Inflation Risks Rise Amid Energy Shock 
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
Bank of Japan's Ueda Flags Low Real Interest Rates as Key Factor in Rate Hike Timing 
Moldova Criticizes Russia Amid Transdniestria Energy Crisis 
Stock Futures Dip as Investors Await Key Payrolls Data 
Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty 
Fed’s Goolsbee Warns Inflation Remains Elevated, Signals Caution on Rate Cuts 
Bank of Korea Signals Potential Interest Rate Hikes as Inflation Remains Elevated 
Global Markets React to Strong U.S. Jobs Data and Rising Yields 
Paraguay Holds Interest Rate at 5.5% as Inflation Remains Stable Amid Global Uncertainty 
Bank of America Posts Strong Q4 2024 Results, Shares Rise 
Bank of England Set to Hold Interest Rates as Inflation Risks and Iran War Impact Loom 
South Korea Central Bank Signals Cautious Policy Amid Inflation and Middle East Tensions 
Trump’s "Shock and Awe" Agenda: Executive Orders from Day One 
The pound sterling should not suffer too much. An interest rate hike by the Bank of England (BoE) next week is now the consensus opinion in the market. And so the fundamental difference between BoE interest rate policy and ECB interest rate policy is strengthened and made clearer. The market has always ignored the fact that all the current BoE interest rate moves are due to a favourable result of the Brexit process.
While the uncertain interaction between contingent trade war risks and the BoC policy reaction function adds to opaqueness in the rate outlook. The recent time’s policy communication from the BoC emphasized delineation between incorporating realized trade policy impact into its forecasts and policy decisions, and deliberately not taking account threatened but unrealized trade actions (e.g. potential future auto tariffs).
Despite drastic volatility in the energy markets, Western Canada Select Crude continues to trade at $50/bbl that stimulates CAD’s strength. If any headwinds in the form of domestic supply disruptions possibly into September (7.5% domestic daily production), plus pronounced spreads vs elevated WTI prices will limit CAD’s upside from additional oil price support.
Option Strategic Framework:
Please be noted that the positively skewed IVs of GBPCAD of 1m tenors is well balanced on either side (refer below chart), technical trend (both minor & major) and above stated fundamental driving forces of this pair have been indicating perplexities which means hedgers’ sentiments of this pair may head towards any directions but with more potential on downside in the near-term.
Accordingly, we advocate below options strategy that is likely to optimize hedging motive.
Strategy: 3-Way Options straddle versus OTM call
Spread ratio: (Long 1: Long 1: Short 1)
How to execute: At spot reference: 1.7941, initiate long in 1M GBPCAD at the money +0.51 delta call, add one more lot of 1M at the money -0.49 delta put and simultaneously, short 1w (1%) out of the money call with positive theta. The short leg with narrowed expiry (lower side) likely to reduce total hedging cost. Courtesy: Nomura
Currency Strength Index: FxWirePro's hourly GBP spot index is at shy above -17 levels (which is bearish), while hourly CAD spot index is edging higher at 65 levels (bullish) while articulating (at 10:24 GMT). For more details on the index, please refer below weblink:
