By: Andrew Keene
The pound sterling rose to its highest level against the euro in 5 weeks on the weekend's news that Cyprusian bank accounts would be taxed to finance a bailout, sparking widespread concerns about the precedent for other depressed Eurozone economies like Italy and Spain.
While the threat of a Cyprus-driven bank panic can rally the pound on the short term perception of the U.K. as an asset safe haven, the fundamentals of the British economic situation suggest this will be short-lived.
Policymakers are desperate to avert another recession, what would be the third in fourth years, after fourth quarter GDP shrank more than expected. The Bank of England's Monetary Policy Committee meeting are scheduled to be published on Wednesday. The bank is currently focused on targeting inflation at 2 percent, but the incoming head Mark Carney has expressed openess to pursuing an employment target similar to the U.S. Federal Reserve's policy. If the MPC minutes reflect even a close vote on extending the Bank's asset purchase program beyond the 375 million target reached in November, many will take it as a sure sign of further easing.
My Trade:
Buying the FXB June 148-146 Put Spread for $.65
Risk: $65 per 1 lot
Reward: $135 per 1 lot
Breakeven: $147.35
Greeks of this Trade:
Delta: Short
Gamma: Long
Vega: Long
Theta: Short