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Pound Volatility Climbs as Tory Leadership Race Comes Into Focus

Pound Volatility Climbs as Tory Leadership Race Comes Into Focus

(Bloomberg) -- Traders are starting to bet on swings in the pound next month as the race to replace U.K. Prime Minister Theresa May kicks off.

The Conservative Party leadership contest has caught the attention of options traders as May’s successor is likely to define the course of Brexit. With May expected to agree a timetable for her own departure in June after a final attempt to get her Brexit bill through Parliament, buying protection against currency swings is getting more expensive.

Pound Volatility Climbs as Tory Leadership Race Comes Into Focus

“It likely reflects more political uncertainty in the U.K.,” said Lee Hardman, a currency strategist at MUFG Bank Ltd. “If the withdrawal agreement fails to pass again, as appears likely, then it is likely to fire the gun on the process to change the Conservative leadership.”

The pound was the most volatile currency among peers for most of this year, before bets on short-term swings collapsed last month after the European Union pushed back the Brexit deadline until October. Volatility is now picking up again, with a gauge of one-month implied swings leading gains to a two-week high of 7.73%.

The pound is treading water below $1.28 after sliding more than 2% last week, the most since October 2017, as the possibility that May’s successor could push for a harder split from the EU weighs on sentiment. Traders will next be watching the outcome of Thursday’s European parliamentary elections, to see the strength of Nigel Farage’s Brexit Party.

To contact the reporters on this story: Vassilis Karamanis in Athens at vkaramanis1@bloomberg.net;Charlotte Ryan in London at cryan147@bloomberg.net

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

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