Back
5 Jul 2013
Flash: GBP/USD maintains negative view in 2013 – UBS
FXstreet.com (New York) - According to Research Analyst Gareth Berry at UBS, “We have held a negative GBP/USD view for all of 2013, with our key argument being the likelihood of a major monetary policy shift in a dovish direction under the new Carney administration.”
Moreover, we reflected this via a short GBP/USD trade recommendation established on 14 Feb (we bought a 6-month 15 Aug expiry 1.4800 strike GBP put / USD call with spot at 1.5500 for 0.9975% of face), arguing that both GBP downside and cable implied volatility were underpriced given the risks involved, especially as the UK was losing its safe haven premium at the same time due to rising political risk. The tenor was also designed to capture the transition to a Carney-led Bank of England.
In the intervening period, we have had to face delayed gratification, as for many observers steady improvement in UK data starting in March eliminated the need for further UK policy easing. However, “with Carney's introduction of forward guidance as part of the Bank of England's Monetary Policy Statement on 4 July, the idea that US and UK rate expectations can diverge significantly should now be better established. Friday's strong US payrolls number should further establish this idea.” Berry adds.
Moreover, we reflected this via a short GBP/USD trade recommendation established on 14 Feb (we bought a 6-month 15 Aug expiry 1.4800 strike GBP put / USD call with spot at 1.5500 for 0.9975% of face), arguing that both GBP downside and cable implied volatility were underpriced given the risks involved, especially as the UK was losing its safe haven premium at the same time due to rising political risk. The tenor was also designed to capture the transition to a Carney-led Bank of England.
In the intervening period, we have had to face delayed gratification, as for many observers steady improvement in UK data starting in March eliminated the need for further UK policy easing. However, “with Carney's introduction of forward guidance as part of the Bank of England's Monetary Policy Statement on 4 July, the idea that US and UK rate expectations can diverge significantly should now be better established. Friday's strong US payrolls number should further establish this idea.” Berry adds.