Pound Volatility Eyes Course North as Brexit Headlines Return

(Bloomberg) -- Volatility in the pound may rise to its highest level since March as the U.K. and the European Union enter the final stage of Brexit talks.

A gauge of swings over one month climbed to its highest in two weeks as comments from EU chief negotiator Michel Barnier on the chances of a Brexit deal moved the currency. As more headlines emerge, implied volatility is likely to rise before a summit of EU leaders on Sept. 20.

The correlation between the number of Brexit stories in the news and pound volatility inverted in mid-August as a summer lull and Brexit fatigue kept investors sidelined. Yet as the stakes rise, with an original target date to get a deal by the time of another EU leaders’ summit starting Oct. 18, investors may opt for pound exposure through options.

One-month pound-dollar volatility traded above 8 percent Thursday to touch a more than two-week high. Should the correlation between news and volatility return, the gauge may rise to levels above 9 percent seen in March.

• NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

To contact the reporter on this story: Vassilis Karamanis in Athens at vkaramanis1@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee

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