GBP/USD: Long-term bearish outlook on GBP improves by most since June 2016

Amidst the UK government’s fiscal policy U-turn, the long-term bearish bias on the pound has eased at the fastest pace since June 2016, as depicted by the options market, Bloomberg reports on Tuesday.

One-year risk reversals in cable, a measure of the spread between call and put prices rallied on Monday in favor of calls by the most since June 2016.

The gauge had reached a record bearish level last week on concern the policy put the government into a long-standing debt crisis and a persistently high inflation era.

In additional evidence of confidence in the British currency, “hedge funds  -- which flock to options markets to place large bets -- have been closing options structures that pay out should the pound weaken since Friday,” Bloomberg said.

At the time of writing, GBP/USD is seeing a fresh selling wave, losing 0.70% on the day to trade at 1.1270. Fading expectations of big BOE rate hikes combined with BOE’s denial of the Financial Times (FT) report on further delay in bond sales exacerbate the pain in the major.