Trading Brexit Headlines Is So Last Year for Pound Investors
(Bloomberg) -- Pound traders are taking a break from Brexit.
The bar to trade sterling on the basis of the U.K.’s impending separation from the European Union is much higher than it used to be. Sharp intraday swings on the back-and-forth between London and Brussels were the norm throughout 2016 and 2017, but the trend was broken this week.
On Friday, the pound held steady, following a report that U.K. officials privately think they won’t get a Brexit deal until next January. Earlier this week, faced with Brexit speeches by EU President Donald Tusk and U.K. Chancellor Philip Hammond, the currency barely moved on the day.
“The decoupling from Brexit headlines is in effect because the risks are now real and there is a growing sense that Brexit won’t be solved anytime soon,” said Viraj Patel, a currency strategist at ING Groep NV. “So it’s natural for investors to shift focus to other short-term factors that are actually transpiring -- rather than trading of gossip or speculation that may or may not transpire.”
The pound has gained less than 0.1 percent this week, its smallest weekly move in more than two years. It has consolidated at around $1.38, having only swung 0.1 percent in the past month.
With an EU summit in a couple of weeks time, sterling may only get a short reprieve from political news. Investors will want to trade the facts after that meeting, as they find out whether Britain has secured a transition deal. Until then, traders will look to economic data and global factors for direction, Patel said.
Even so, options traders are not expecting fireworks for the currency from the gathering of European leaders either. A measure of two-week pound volatility is at 8.50 percent, compared to the 11.33 percent reached before a key EU summit in December.
©2018 Bloomberg L.P.