Traders to Keep Kicking Pound as Pressure Builds Over `Brexit'

  • Swings during past three months were biggest since June
  • Sentiment `very shaky' before `Brexit' vote: Commerzbank

For the pound, the past three months were the most volatile since June against the dollar -- and a gauge of future price swings suggests there’s more to come.

Sterling has declined about 3.6 percent this year, accelerating its drop after the referendum on Britain’s membership to the European Union was set for June 23, and prominent Conservative party politician Boris Johnson announced his support for the campaign to leave. A gauge of implied volatility in the pound-dollar exchange rate in three months’ time, based on options, was near the highest level since 2010.

Against the euro, sterling tumbled to its weakest level since 2014 this week after a report showed a gauge of manufacturing output held near the lowest since 2013. Reports next week on the services sector as well as industrial and manufacturing production will give traders further insight into the extent to which the U.K. economy is faltering.

“Sterling is certainly going to be volatile,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “Sentiment towards the pound is very, very shaky, with the ‘Brexit’ vote coming closer,” she said, referring to a possible British exit from the EU. “I cannot exclude that if the data next week disappoints that we will rise even further in euro-sterling.”

The pound slumped 1.1 percent to $1.4199 as of 4:52 p.m. London time Friday, deepening a 2.6 percent decline from the first quarter. Sterling fell 1 percent to 80.09 pence per euro, after reaching 80.20 pence, the weakest since November 2014.

Peer Performance

Sterling weakened at least 2.7 percent against all 16 of its major peers this year amid concern the Britain will vote to leave the world’s biggest single market.

Data showed this week that the U.K.’s current-account deficit widened to the largest percentage of gross-domestic product on record, highlighting the need for investment inflows from overseas. There is concern from traders that the economic and political uncertainty could deter such investments.

A gauge of three-month historical volatility climbed to 9.86 percent, the highest since June on a closing basis. Future price swings in three months were projected at 15.1 percent, near the highest since June 2010.

Before it's here, it's on the Bloomberg Terminal.