Pound Volatility Premium Over Euro to Persist on Brexit Concerns
- Gradual central bank tightening to keep global volatility low
- Norges Bank hike is not enough to spur broad gamma demand
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Buying protection over fluctuations in the pound will remain a relatively costly exercise as Brexit headlines gather momentum and central banks slowly tighten policy.
Uncertainty over the endgame of Brexit talks -- key disagreements still need to be addressed -- and risks that euroskeptic Conservatives may challenge U.K. Prime Minister Theresa May’s leadership may support gamma demand for sterling. The same cannot be said for the euro, as one-month volatility in euro-dollar extended its recent drop as the European Central Bank stuck to its well-communicated patient monetary tightening.