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Pound Becoming More Volatile

Pound Becoming More VolatilePound Becoming More Volatile

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% 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, Bloomberg reported.

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

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.

Financialtribune.com