• GBP remains range-bound with FX option implied volatility at its lowest since January — 1-month 6.0, 3-month 6.2, 1-year 7.2.

• The US/Iran deal has provided modest relief but little GBP direction — hence further FX vol compression

• Risk reversals still favour downside strikes but that skew is retreating from mid-May highs, nearing its lowest since February

• However, short-date option implied volatility is supported to recognise near-term event risks - Makerfield by-election, US Fed and UK MPC

• Andy Burnham is expected to win Makerfield and launch Labour leadership challenge, although timeline unclear - uncertainty may cap GBP

• The Fed is arguably the biggest risk to FX and GBP/USD this week as markets scrutinise new Gov Kevin Warsh's stance on economic policy

• Related comment - The FX winners from a US/Iran peace deal
GBP/USD FXO implied volatility


GBP/USD risk reversals


(Richard Pace is a Reuters market analyst. The views expressed are his own)