GBP/USD: Demand for weekly put options strongest since September 2016

  • GBP/USD's weekly risk reversals show the strongest bearish bias in over three years. 
  • Investors are hedging for a surprise election outcome. 

Sterling investors are hedging themselves against a surprise election outcome - Labour victory or hung parliament - which could spell doom for the British currency, risk reversals show. 

On Tuesday, one-week Sterling risk reversals, a gauge of calls to puts, fell to -5.32, signaling the strongest bearish bias since September 2016. 

A negative number indicates the demand or volatility premium claimed by the put options (bearish bets) is higher than that by the call options (bullish bets). 

One-week risk reversals have witnessed a near-90 degree drop from -0.60 to -5.32 over the last 12 days. During the same time period, GBP/USD rose from 1.29 to 1.3215. 

The divergence is unusual and indicates fear among investors that the election outcome could be different than what opinion polls are predicting. 

Prime Minister Boris Johnson's Tory party will win 339 of the 650 seats in the House of Commons, Labour 231, the Scottish National Party 41, and the Liberal Democrats 15, according to YouGov MRP poll. Johnson's lead, however, has recently narrowed sharply. 

Britons are set to vote on Dec. 12. 

Risk reversals


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex News

Editors’ Picks

AUD/USD rises above 50-HMA, bull reversal in the making?

The sell-off in AUD/USD seems to have run out of steam, courtesy easing RBA rate cut expectations after upbeat Australian CPI data. The pair trades above the 50-hour average. A close above 0.6765 would confirm a bullish reversal candlestick pattern on the daily chart. 


USD/JPY fills Monday's bearish gap ahead of Fed interest rate

USD/JPY has filled the gap created by Monday's negative open. Coronavirus fears have subsided in the last 24 hours, allowing recovery in USD/JPY. The respite could be short-lived if the Fed sounds dovish, sending the US dollar lower. 


Federal interest rate preview: Stable policy and an uncertain future

The course of the American economy has not altered since the previous FOMC meeting on Dec last year. 4Q growth is expected to be 2.1% when the preliminary figures are released by the Bureau of Economic Analysis on Thursday.

Read more

Gold: Bulls looking for a discount in $1560s

Gold top in the making with a weekly shooting star and weekly divergence. The price of gold has been found floundering between 1580 and the 1560s following a surge at the start of the year to the highest levels since March 2013 at $1,611.

Gold News

GBP/USD: 1.3080 questions break of short-term falling trendline

GBP/USD trades near 1.3025 during the early Wednesday’s trading session. The pair recently broke a three-day-old falling trend line but is still to cross the near-term key resistance confluence.