Published: Sun, August 12, 2018
Economy | By

GBP/USD tumbles to 1.2900 handle, fresh 11-month lows

GBP/USD tumbles to 1.2900 handle, fresh 11-month lows

The pound slipped to the lowest level against the euro in nearly nine months amid growing concern that the United Kingdom could end up leaving the European Union with no agreement for future economic ties.

Sterling/dollar three-month implied volatility - a gauge of how volatile traders expect a currency to be - this week spiked to its highest since early March.

Sterling and United Kingdom government bonds will fall further in the run-up to Brexit, even after the pound slumped this week to its lowest in nearly a year, prominent Brexit-supporting British hedge fund manager Crispin Odey said on Thursday.

Warnings this month from Bank of England Governor Mark Carney and trade minister Liam Fox, that the prospect of a no-deal Brexit was growing, triggered the recent slide.

Christophe Barraud, an economist at Paris-based brokerage Market Securities, said: "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". Few saw the increase as a vote of confidence in the economy with so much political uncertainty ahead.

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.

While this is not a guarantee yet, with Prime Minister Theresa May scrambling to salvage a cohesive deal with the European Union, negativity from Fox is particularly disheartening for GBP investors in light of his previous conviction that the United Kingdom would leave the European Union "easily". The pound is also down 0.58% against the euro and down 0.86% against the Japanese yen.

The pound has fallen more than 10 per cent since mid-April versus the dollar.

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. GBP/EUR opened the week at the level of 1.1238 and tumbled for around three days straight, touching its lowest levels in nearly 11 months, 1.1081, on Thursday morning before rebounding higher.

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

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