Pound continues its slide on no-deal Brexit fears

12 Août, 2018, 10:03 | Auteur: Auguste Feret
  • The Hargreaves Lansdown founder said that the government’s negotiators “didn’t have a clue”

Three-month sterling volatility rose to its highest since March.

U.K. International Trade Secretary Liam Fox said over the weekend that the risk of a no-deal Brexit had increased to as much as 60 percent.

Last week Bank of England governor Mark Carney warned that the risk of the United Kingdom leaving the European Union without a deal was "uncomfortably high", something he described as a "highly undesirable" scenario.

"A lot of companies can't wait for the negotiations outcome in October, so of course are trying to hedge against a drop in the pound", said Christophe Barraud, an economist at Market Securities brokerage in Paris.

Sterling slid to $1.2842 in mid-morning trading, its weakest since 25 August 2017.

If the direction of travel persists, the FTSE 100 and the pound could soon be positively correlated for the first time since December 2016 - bad news for United Kingdom stocks, as sterling slumps to a near one-year low.

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But during periods of rising interest rates and higher inflation, this negative correlation has tended to reverse - a trend already noticeable in recent months and which has moved to zero a week after the Bank of England's recent quarter-point rate rise.

Against the euro, the pound has held up far better as demand for dollars has kept the euro on the back foot. The UK government has so far made little progress in agreeing on a post-Brexit trading deal with the EU.

"We remain bearish on the pound in the short term until the Brexit mess is out the way and look for the currency to enter a US$1.27-1.28 range before the leaders' summit in September", said Nomura strategist Jordan Rochester. The pound has lost more than 10 percent since April and is down nearly 15 percent since the Brexit Referendum in June 2016.

A lull in domestic data has meant that the Pound cannot gain any traction, but an assortment of data tomorrow, including quarterly GDP growth, could give Sterling a sorely-needed lift.

Against the euro, the pound hit a nine-month low after it passed the 90p mark once again yesterday.

Puts are an option to sell an asset and calls the right to buy an asset.

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