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Brexit: Sterling’s slide remains the continuing feature – BBH

By FXStreet Research Team at BBH, suggests that Sterling’s slide remains the continuing feature in the foreign exchange market as Brexit fears dominate.

Key Quotes

“It has convincingly broken the $1.40 level and is trading near $1.3915. It has lost about 3.4% this week already. In terms of economic impact, sterling’s trade-weighted performance is key. The Bank of England’s effective exchange rate measure has fallen 8.7%, of which 5.4% has been recorded this month alone.

UK officials are likely more concerned about the pace of the move than the direction. The pass-through to inflation may take several months provided it is sustained. To the extent that there is a trade advantage, it likely takes even longer to be seen.

Not only is sterling being sold in the spot and forward market, but some investors seek protection in options market. Implied volatility is rising, which suggest puts being bought rather the calls being sold. Three-month implied volatility is near 11.5% today, up from 8.7% at the end of last year and 8.9% at the end of January. Last April, three-month implied volatility spiked to 12.5%.

In the options market, puts and calls equidistant from the forward strike should be similarly …read more

Source:: FX Street

      

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