We believe there is a lot of risk premium priced for the BoE/QIR this week. The forward implied overnight vol for the event is worth around 30 vols, this equates to around a 1.7 big figure move for the overnight ATM straddle.
We believe the MPC will struggle to exceed the already dovish market expectations and as such the options market likely reflects risks that the BoE will disappoint.
We expect the BoE to deliver a 25bp cut and given the BoE’s comments at the July meeting, it would be difficult for the Bank to not deliver some form of stimulus, as such options pricing is perhaps a little elevated.
Copyright © 2016 Credit Agricole CIB, eFXnews™Original Article
