Pound Set for ‘Neurotic’ Day as Hammond Speech May Roil Trading

  • Sterling rose almost 1 percent in a minute on Nov. 21
  • Autumn Statement may cause ‘neurotic trading’: Santander

Looking Ahead to Hammond's Autumn Statement

As extreme price fluctuations begin to look like the new normal for pound traders, the U.K. Chancellor of the Exchequer’s budget update on Wednesday may confirm their vision.

Sterling’s volatility versus the dollar has increased this week, after the currency soared almost 1 percent in a minute on Monday and fell 0.1 percent on Tuesday. This follows jumps and selloffs in the past month on speculation Brexit will be delayed, including a flash crash on Oct. 7 that saw the currency drop to a 31-year low of $1.1841.

Philip Hammond is due to announce the first fiscal statement since the U.K.’s vote to leave the European Union in June, which will give investors insight into the government’s economic policies. One-week volatility for the pound versus the dollar, a measure of anticipated price swings derived from options prices, was at 9.7 percent, after earlier rising to as high as 10.2 percent. It closed at 9.3 percent on Monday.

“There will be more people listening intently than there normally are, and as such there might be some sort of neurotic trading,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London, speaking ahead of the budget update. “There might be a little more hovering over buttons just in case there’s something that is either more negative about the economic outlook or indeed more positive,” Bennett said.

Sterling fell 0.4 percent to $1.2380 as of 10:51 a.m. in London. It was lower against all Group-of-10 peers.

The pound has weakened about 17 percent in the five months since the U.K. voted to leave the European Union, and it was the world’s worst-performing currency last month. The price swings since Brexit are akin to those in emerging-market currencies, as sterling continues to “move on political rhetoric rather than following the fundamentals,” Bennett said.

“Currency traders will be more tuned to what the chancellor is saying with the backdrop of Brexit uncertainty,” he added.

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