Corporate Hedging Recommendation: Participating In GBP Downside

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• GBP remains vulnerable in the medium term as de-leveraging in the public, household and banking sectors weighs on growth. A massive fiscal consolidation is necessary in the UK and we expect further declines in GBP as a result.

• For sellers of EUR/GBP, we recommend hedges which are able to participate in possible EUR strength in the medium term.

• EUR/GBP skews remain elevated and appear rich relative to the realized spot/vol correlation; we recommend hedgers take advantage of these favorable levels through zero-cost collars.

• Similarly, GBP/USD skews are cheap, making collars attractive for buyers of GBP against USD

ENDS