Brexit impact seen in options, not spot market – BBH

By FXStreet Analysts at Brown Brothers Harriman noted that despite the technical weakness, sterling has been fairly resilient during the dollar’s recovery that began with the reversal on May 3.

Key Quotes:

“Since then, sterling’s 1.2% decline means that it is the second strongest of major foreign currencies after the Norwegian krone’s 0.9% slippage. Although some observers argue sterling’s relatively good showing is a reflection of the fact that Brexit has been discounted.

We are less sanguine. First, anecdotally many investors think that, like the Scottish referendum, the polls are exaggerating the tightness. We are worried that this means that their hedge ratios are light. Second, contingent risk, which is what the referendum represents is best expressed through the options market. It is in the options market, not the spot market that shows the Brexitimpact.”
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Source:: FX Street