Sterling volatility heightened by data & Labour lead

<p>Sterling hit fresh five-month lows on a combination of market-unfriendly election opinion polls and a fresh round of disappointing economic data. Sterling’s one-month option volatility vs […]</p>

Sterling hit fresh five-month lows on a combination of market-unfriendly election opinion polls and a fresh round of disappointing economic data.

Sterling’s one-month option volatility vs the US dollar – a reflection of fear – broke above the 2011 highs to hit the highest level since the 2010 general election.

UK industrial production rose 0.1%in the year ending in February, the weakest since August 2013, days after the UK trade deficit rose to five-month high.

Opinion polls damage sterling

After most opinion polls have put the Conservatives ahead of Labour by one percentage point over the past two weeks, three polls on Thursday pointed to Labour leading ahead of the Conservatives by as many as six points(ComRes poll) and four points (YouGov poll).

Interestingly, the second leg of the yesterday’s selling wave in GBP/USD began at approximately 8:00 London time/BST, coinciding with the publication of an FT online article about election uncertainty starting to weigh on the pound. The article was published in the midst of a generally positive environment for the currency as the majority of polls showed Conservatives ahead of Labour. Yesterday’s FT piece was the first to show Labour ahead and it was swiftly picked up by traders.

Sterling volatility overtakes Scottish Independence, Eurozone crisis

Notably, one-month option volatility on GBP/USD –a measure of GBP volatility — has risen to its highest level since June 2010, exceeding the highs during of the Scottish Independence referendum uncertainty in September and during the heightened Eurozone selloff in summer 2011. Not only their exist the potentially lose-lose situation for sterling from the EU referendum implications of a Conservatives win, but also the market repercussions of an SNP-backed win for Labour.

GBP/USD may be on its way to post four consecutive negative quarters, which was last seen 10 years ago. As the pair hits five-year lows and the lose-lose scenario weighs on the currency, $1.4250 may well be on the cards.


GBPUSD 1-mth option volatility April 10 2015



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.