Short bets on £ highest after UK vote

Pound jumps in wild Asia trading as markets price in less risk of disorderly exit from EU

It seems a consensus is finally emerging on Brexit - not about the vote, but the fate of the beleaguered pound.

A gauge of trader positioning from Citigroup shows short bets on the sterling at their highest levels since December and the bearish wagers are set to rise even further, according to market participants.

The rationale: Britain just cannot seem to agree on a Brexit deal - and the uncertainty will keep bruising sentiment towards the most-volatile Group of 10 currency this year, said Ms Jingyi Pan, strategist at IG Asia in Singapore.

"The closer we get to the Brexit deadline without a clear resolution, the more nervous markets will become," she said.

"You're just going to see those short positions build up further."

The sterling has swung wildly this week between US$1.30 and US$1.33 and at junctures it has been at its most volatile since the June 2016 Brexit referendum.

Yesterday, the sterling jumped in wild Asia trading as markets priced in less risk of a disorderly exit from the European Union after the British Parliament rejected leaving the bloc without a deal.

The pound traded as high as US$1.3380, levels last seen in June last year and up from an almost 21-month low of US$1.3064 on Wednesday. The euro was quoted at around 84.725 pence, its lowest since mid-2017.

However, it later retreated as traders contemplated the possibilities, including a second referendum or a general election. By 0930 GMT (5.30pm Singapore time), the pound was 1/2 per cent lower at US$1.3275. Versus the euro, it was down 0.4 per cent at 85.29 pence.

The motion on Wednesday is not legally binding and the United Kingdom could still potentially crash out of the EU on March 29 if no Brexit deal is agreed on and no delay is granted by the bloc.

"It should give the government a strong mandate to agree with the EU," said Commerzbank currency strategist Esther Reichelt. "But in the end, the Parliament might not like the conditions attached to a delay by the EU."

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on March 15, 2019, with the headline 'Short bets on £ highest after UK vote'. Print Edition | Subscribe