LONDON, Sept 12 — Sterling held today near the six-week high it reached at the start of the week as investors weighed up Britain’s chances of securing a divorce deal with the European Union ahead of its departure from the bloc on October 31.
With the UK parliament in recess after Prime Minister Boris Johnson suspended it for five weeks — a move judged unlawful by Scotland’s highest court of appeal yesterday — traders lacked any new Brexit developments to digest and stayed on the sidelines.
The court ruling has prompted calls for lawmakers to return to work as the government and parliament battle over the future of Brexit.
Outcomes ranging from leaving without a deal to another referendum that could cancel the whole process are forcing some investors to stay away from the pound and trade on volatility instead.
“The overarching driver of sterling is Brexit uncertainty, and today should be a fairly quiet day on this front,” ING analysts wrote in a note, adding that “although the Scottish court ruled the suspension of the UK Parliament as unlawful, the decision now goes to the UK Supreme Court.”
The pound was flat at US$1.2329 (RM5.14), close to US$1.2385, a high it surged to on Monday on the back of no-deal Brexit worries receding and better-than-expected economic data. Against the euro, the pound was slightly lower at 89.45 pence , also close to a six-week high.
Two-month volatility gauges — which stretch beyond the October 31 current Brexit deadline — embedded in options prices have come down off three-years highs. Today, they were trading at 9.40 vols, down from 15.45 vols on September 3, the highest levels since the 2016 referendum.
Sterling’s steadiness was also partly due to the amount of short positions hedge funds held on sterling, analysts said. In the week to September 3 leveraged funds reduced their positions slightly, but the amount of contracts, at US$6.42 billion, was close to the highest since April 2017. — Reuters
