Cable is the most over-valued G10 currency versus the dollar (refer above chart). Indeed, cable is more expensive versus 2Y rate spreads than at any point in the last five years. Fair-value currently languishes at 1.15, more than two sigma below the spot rate (refer above chart). GBP is consequently one of the most attractive currencies to sell for an extension of the dollar’s interest rate rally.
There is also the strong domestic case to re-sell GBP insofar as:
1) The economy is now more clearly slowing in response to an inflation drag on consumption and underlying business caution due to Brexit. Growth in Q1’17 is expected to be only half the 2.9% recorded in Q4’16. High hopes for BoE rate hikes this year have been crushed.
2) The government is on course to trigger Article 50 by the middle of the month despite a setback in the House of Lords for its enabling legislation Q1 over Article 50. Investor confidence is vulnerable as it should become apparent.
All these fundamental driving forces of GBPUSD are factored in OTC FX markets.
The negative delta risk reversal numbers are bidding for downside risks, while IV slews are also substantiating this stance as the hedgers' interests are stretched towards OTM put strikes.
While risk reversals of 6m tenors also indicate the high degree of bearish risks, this would imply that the puts are relatively costlier than the call options, while 6m IV skews are the evidence of the hedgers’ interests of OTM put bids.


Stock Futures Dip as Investors Await Key Payrolls Data
ECB Rate Outlook: Ceasefire Eases Pressure but Hikes Still Expected in 2026
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data
Moody's Upgrades Argentina's Credit Rating Amid Economic Reforms
ECB Signals Possible Interest Rate Move if Inflation Outlook Fails to Improve
U.S. Stocks vs. Bonds: Are Diverging Valuations Signaling a Shift?
S&P 500 Relies on Tech for Growth in Q4 2024, Says Barclays
US Gas Market Poised for Supercycle: Bernstein Analysts
Wall Street Analysts Weigh in on Latest NFP Data
Lithium Market Poised for Recovery Amid Supply Cuts and Rising Demand
Kevin Warsh Advances Toward Fed Chair Role Amid Political Tensions
2025 Market Outlook: Key January Events to Watch
Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty
China's Refining Industry Faces Major Shakeup Amid Challenges
Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios




