British pound as volatile as emerging market currency

LONDON • The British pound has more in common with the Colombian peso and the Polish zloty than you may think.

The roller-coaster ride in the exchange rate over the past week - spurred by the latest twists and turns in the Brexit negotiations - underscores a mounting similarity to an emerging-market currency this year, if volatility is anything to go by.

At 9 per cent, the pound's realised swings against the dollar over the past 12 months have outpaced all developed-market peers, according to data compiled by Bloomberg.

The currency is the eighth-most volatile across major emerging and advanced economies, ranking alongside exchange rates from eastern Europe and Latin America. The only other developed-market currency in the top 10 is the New Zealand dollar, which was rocked by concern of an economic slowdown after the Labour Party unexpectedly won enough support to form a government in elections in October.

"The Great British Pound now trades like an emerging market currency," tweeted Mr Jim Leaviss, head of retail fixed interest at Prudential's M&G Investments, and contributor to the popular Bond Vigilantes blog.

Trading in the euro, the Canadian dollar and Swiss Franc has been far calmer by comparison, with realised volatility against the greenback over the past year at 7.5 per cent, 7.4 per cent and 7.1 per cent, respectively.

At 9 per cent, the pound's realised swings against the dollar over the past 12 months have outpaced all developed-market peers, according to data compiled by Bloomberg.

British investors can take solace, however, in the fact that the pound is not likely to suffer the same vulnerability to global shifts in sentiment as its emerging-market peers. The pound's correlation with an index of developing-economy exchange rates - which jumped in the Brexit-vote tumult - has tumbled over the past year.

Sterling may be volatile, but at least it's following its own path.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on December 12, 2017, with the headline 'British pound as volatile as emerging market currency'. Print Edition | Subscribe