Published: Sun, August 12, 2018
Money | By Ralph Mccoy

Sterling volatility continues over no deal Brexit fears

Sterling volatility continues over no deal Brexit fears

Euro and pound banknotes are seen in front of BREXIT letters in this picture illustration taken April 28, 2017.

London-based traders said investors had moved to hedge against the currency's going into free fall if Britain drops out of the European Union with no deal in less than eight months' time.

Connor Campbell, financial analyst at SpreadEx, said: "The fears of a no-deal Brexit have really gathered steam in the last few sessions, a snowball effect stemming from Mark Carney and Liam Fox's warnings either side of the weekend". Three-month sterling volatility rose to its highest since March.

Although Ian McCafferty is an external Monetary Policy Committee member who is leaving the MPC at the end of this August, his hawkish views are well known as he was voting for a rate hike since March until the Bank of England raised the Bank rate to 0.75 percent last week delivering dovish monetary policy outlook.

"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.

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The news of no-deal Brexit weighs on Sterling sending it to the lowest level since August 31 previous year and coupled with earlier comments of the outgoing Monetary Policy Committee (MPC) member Ian McCafferty who added to the no-deal Brexit fear in public debate together with dovish monetary policy outlook.

He believes that a no-deal Brexit is now more likely than an agreed withdrawal, putting the odds at "60-40".

"Right now we're short of any meaningful news flow and uncertainty is high - that's not a good thing", said Jordan Rochester, an analyst at Nomura International Plc. The pound has lost more than 10 percent since April and is down nearly 15 percent since the Brexit Referendum in June 2016.

Traders are now preparing for Friday's reading of second-quarter British economic growth numbers to give the pound some possible relief. It had a similar slump against the euro, down to a nine-month low of €1.11.

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