Bank of America Merrill Lynch Global Research urges investors to hedge their GBP shorts ahead of the Brexit deadline of October 31.
"FX spot and FX options markets see a rising risk of a no-Brexit scenario in the next three months. GBP skew has tilted for puts across G10 and GBP vols have risen for all G10 pairs. In addition, GBP spot is now on a downtrend against each of the nine crosses in G10.
We remain bearish GBP/USD and GBP/JPY, which appear most vulnerable given rising volatility on the way down and residual skew for puts," BofAML notes.
"A no-deal Brexit is not a given and a deal or delay may yet be agreed to. However, given a clear bearish message from the FX markets, investors should not be complacent about the status quo and should consider hedging their exposure," BofAML adds.