Sterling driven by weaker dollar; investors eye month-end for trade deal

Banknotes of Euro, Hong Kong dollar, US dollar, Japanese yen, British pound and Chinese 100 yuan are seen in this picture illustration in Beijing January 21, 2016. — Reuters pic
Banknotes of Euro, Hong Kong dollar, US dollar, Japanese yen, British pound and Chinese 100 yuan are seen in this picture illustration in Beijing January 21, 2016. — Reuters pic

LONDON, July 2 — The pound continued to be driven up by the weaker US dollar today and stayed neutral versus the euro as investors assessed the probability of Britain signing a trade deal with the European Union by the end of this year.

This month is crucial for sterling as by the end, it should become clear with Britain will walk away with a deal or not.

“The second to last week and the last week of July are going to be the extreme Brexit crunch point,” said Stephen Gallo, European head of FX strategy at BMO.

“If there’s not movement by the week of 20th or the week of 27th, that may be the second wave of selling in sterling,” Gallo said.

The pound traded last at US$1.2508 (RM5.36), up 0.3 per cent on the day and an eight-day high.

It has improved in the last couple of days, but prior to that it kept falling for nearly the entire of June, losing 2.7 per cent.

Against the euro, sterling was steady at 90.19 pence.

Speculators have added some short positions on the pound in the week to tomorrow, as net shorts reached US$1.44 billion, according to latest CFTC data.

Sterling implied volatility levels are higher thank in other major currencies, as costs for one-month option contracts get pricy, suggesting investors are more worried about where the pound may end up in the couple of months.

One-month implied volatility gauges in the pound were last at 8.3 per cent, compared with the euro at 6.75 per cent. — Reuters

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