Sat in the pursuit of a synonym for ‘deadline’ that begins with the letter ‘M’ all for the sake of alliteration, it’s easy to let the tumultuous world of Brexit pass you by. Foreign exchange markets seem just as carefree unable to displace the Pound more than 0.01% since market open this morning! There were residual signs of swelling risk. In the options market, high demand for risk reversals saw Sterling’s implied volatility fall for contracts with a late-March expiry whilst call options appreciated in value relative to put options, suggesting Sterling upside rather than downside is the fear. In the Sterling spot market, a sudden and short-lived rally through 1.13 was observed as headlines erroneously hinted towards a delay in the Brexit deadline. When the government lost last night’s vote on the Brexit deal, Sterling spiked upwards. The reason that traders and analysts have attributed to the appreciation is that the defeat left May’s deal so dead in the water that it was inconceivable, what with the decreasing probability of a no-deal Brexit, that the UK could leave by March 29th, therefore inviting a softer and more thorough Brexit. Today’s continued rally stands as testimony to this view. However, last night’s rally following a day of losses undeniably represents a liquidation of short covering and positioning moving into the vote. With the vote of no confidence tonight, we’re in for another evening of salience and turbulence. Hold onto your hats!
Discussion and Analysis by Charles Porter