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The GBP/USD has retested a multi-month low below 1.1700, despite hawkish signals from the options market

Daniel Rogers

Aug 29, 2022 14:42

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Despite bullish signs from the options market, Friday's continuation of the GBP/USD decline to a new low since March 2020 has GBP/USD leaning bearish near 1.1680.

 

Nonetheless, the GBP/USD one-month risk reversal (RR), which is the difference between call options and put options, recorded a four-day gain at Friday's end, peaking at 0.025. The RR value flips from negative -0.480 last week to positive 0.295 this week.

 

The recent aggressive language from the Fed and economic worries regarding the UK, especially in the context of political uncertainty, should have served as clues for the negative inclination.

 

Fed Chairman Jerome Powell said in his much-anticipated Jackson Hole speech on Friday that restoring price stability will take some time and involve "forceful" use of the central bank's tools. The policymaker also said that maintaining a restrictive approach for "some time" will be necessary to restore price stability.

 

Goldman Sachs expects a recession for the United Kingdom in Q4 2022, and lowers its GDP forecast for the year from 3.7% to 3.5% on a separate page. The US bank concludes in its latest report that the recession will be "very modest."