GBP: Volatility to rise in coming weeks on UK political risk - ANZ

Analysts at ANZ over their outlook on the GBP/USD pair, especially after the BOE’s dovish rate hike and amid looming Brexit uncertainty.

Key Quotes:

“With a number of key events likely to drive a rise in volatility over the coming weeks

Scandals are threatening PM May's thin majority and are likely to leave the Tory party (and May's leadership) weakened.

UK-EU negotiations will start tonight ... scheduled to occur every three weeks ...  there are just three rounds of negotiations before December's EU summit, where EU leaders will have to decide (again) if sufficient progress has been made.

The UK Government may publish 58 'secret studies' on Brexit.

Finally, October's CPI will be released next Tuesday, and that may also drive some volatility in the GBP - considering the highly contingent nature of the BoE's current tightening cycle.

We think these factors are under-priced in option volatility and recommend buying a 1 month GBP/USD ATM Straddle at a cost of 1.65%.”