GBP is the second worst-performing currency over the past two weeks as evidence cumulates of a broad-based loss in economic momentum(the TWI has lost 3%to 1% below the 6m average). The economy was a support for GBP through H2’16 as growth accelerated rather than slowed following the Brexit vote, helped by the easing in financial conditions.

But with growth on course to slow by more than half from the 2.8% recorded in Q4’16 as consumers feel the pinch from inflation and business capex remains weak, GBP is being undermined by a pronounced deterioration in interest rate support.

The deterioration in the UK data cycle could not have been more poorly timed for GBP as

1) It contrasts with acceleration in global growth, and

2) The Brexit process will soon begin in earnest as the UK government is close to securing parliamentary assent for Article 50 (the House of Lords attached two amendments to the Brexit Bill but the Commons is expected to reject these). It should become apparent fairly soon during the formal exit negotiations which follow that the UK is headed towards a harder Brexit outside the single market as Europe is not willing to compromise the EU’s principle freedoms while the UK will not compromise on a desire to control migration. A possible second Scottish referendum can be added to GBP’s Brexit woes (the SNP conference is March 17-18).

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.