GBP: Short-lived trip after Liberation Day seems to be over on the options market – Commerzbank

There was an increase in positive risk reversals in GBP/USD in the aftermath of Liberation Day, which had not occurred in previous years. A stronger Pound Sterling (GBP) against the US Dollar (USD) in recent years has tended to be accompanied by a lower willingness to hedge against further pound weakness on the options market, Commerzbank's FX analyst Michael Pfister notes.

Insurance against USD weakness has increased

"After Liberation Day, however, the pound did not appreciate significantly further against the US dollar; instead, insurance against USD weakness increased. From a market perspective, the risks were basically similar to those for EUR/USD and were insufficient to give the exchange rate a clear direction; however, investors still preferred to hedge against these risks."

"Interestingly, since mid-June, the situation has returned to normal (at least in GBP/USD). It appears that market participants believe that the risk of pronounced USD weakness has decreased. This is likely to remain the case, at least as long as Trump does not trigger a new escalation that would reinforce fundamental doubts about the US Dollar."

"Another point to note is that yesterday's British labour market data had no impact on the pound, with the figures largely in line with expectations."