UK election risk to GBP, according to FX options
Implied volatility gauges FX realised volatility expectations and is a key component of an FX option premium. Overnight expiry GBP related implied volatility now includes the UK election and is therefore a bellwether for related FX volatility risk.
Overnight GBP/USD implied volatility has averaged 7.5 over recent sessions - a premium/break-even of 40 USD pips in either direction for a simple vanilla straddle. Since including the election, its implied volatility is 10.25 or 54 USD pips in either direction and much of that additional volatility risk premium can probably be attributed to Friday's NFP data.
Overnight GBP/USD implied volatility has averaged 7.5 over recent sessions - a premium/break-even of 40 USD pips in either direction for a simple vanilla straddle. Since including the election, its implied volatility is 10.25 or 54 USD pips in either direction and much of that additional volatility risk premium can probably be attributed to Friday's NFP data.
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