$GBP slipper slope - short
One-year risk reversals in cable, a barometer of market positioning and sentiment, rallied on Monday in favor of calls by the most since June 2016, implying bearish sentiment haunting the currency retreated almost as fast as the government’s decision to scrap plans for vast unfunded fiscal stimulus. The gauge had reached a record bearish level last week on concern the policy would balloon the government deficit and fan inflation.
In an added sign of the improving outlook, hedge funds -- which flock to options markets to place large bets -- have been closing options structures that pay out should the pound weaken since Friday. That’s according to Europe-based traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly.
To be sure, bearish bets still dominate the options space and the magnitude of the move was mainly down to extreme positioning. Still, it shows investors now see lower chances for a deep drop in the UK currency following the policy U-Turn. The repositioning came as the pound rallied on Monday, outperforming Group-of-10 peers to rise 1.7% to $1.1358.
Sterling swung between gains and losses in early trading on Tuesday following a report the Bank of England is likely to delay its planned sale of government bonds. It was trading 0.2% weaker at $1.1339 as of 9:29 a.m. London.
I disagree w/this analysis. I believe the headwinds remain unchanged and they are strong. The market isn't the public, it votes w/its money and the smart money is selling. Further, the BOE isn't in the business of buying gilts (bonds) but it did and is holding them. Why? because when Truss put them to mkt - they got no bid. The BOE smartly doesn't want to get the same pie on its face so, its booking them. Nothing has changed. Down range it remains the same.
In an added sign of the improving outlook, hedge funds -- which flock to options markets to place large bets -- have been closing options structures that pay out should the pound weaken since Friday. That’s according to Europe-based traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly.
To be sure, bearish bets still dominate the options space and the magnitude of the move was mainly down to extreme positioning. Still, it shows investors now see lower chances for a deep drop in the UK currency following the policy U-Turn. The repositioning came as the pound rallied on Monday, outperforming Group-of-10 peers to rise 1.7% to $1.1358.
Sterling swung between gains and losses in early trading on Tuesday following a report the Bank of England is likely to delay its planned sale of government bonds. It was trading 0.2% weaker at $1.1339 as of 9:29 a.m. London.
I disagree w/this analysis. I believe the headwinds remain unchanged and they are strong. The market isn't the public, it votes w/its money and the smart money is selling. Further, the BOE isn't in the business of buying gilts (bonds) but it did and is holding them. Why? because when Truss put them to mkt - they got no bid. The BOE smartly doesn't want to get the same pie on its face so, its booking them. Nothing has changed. Down range it remains the same.
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