Sterling hangs on a thread

‘No-deal’ scenarios are past due a dust-off

Those ‘no-deal’ trades are past due a dust-off, but sterling bulls are keeping the faith

Traders keep finding reasons to discount ‘crash-out’ risk. For one, retail data showing British shoppers were defiant of the gloom for yet another month. The Bank of England’s slight upgrade of first-quarter growth for another. Sterling’s range against the dollar in five sessions has extended to the downside on Thursday but remains quite contained to about 200 pips.

Price chart: sterling/U.S. dollar – hourly [21/03/2019 13:48:23]

Source: Refinitiv/City Index

This looks defiant and optimistic after Prime Minister Theresa May revived no-deal odds by insisting on only a short extension of the Article 50 period. Now, the government plans to bring its deal back to parliament for a third vote, relying on precedent that suggests it can do so if The House wishes. The odds of it passing are not great. And what if the EU is not bluffing when it says an extension depends on parliament approving May’s deal? Then Britain will crash out.

One alternative scenario may be supporting sterling:

  • Note PM May’s hint that she might resign if Brexit isn’t delivered by 30th June
  • With May gone, Brussels may conclude a hard-line Conservative would struggle to replace her
  • The EU could therefore mandate an extension well past 30th June

It’s a patently threadbare rationale. Risk of another blindsiding twist is high. That’s why short-term volatility expectations are inching back to last week’s levels, the highest since July 2017. Still, it would probably take a break outside sterling’s one-week range for buyers to lose the faith.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.