Why some traders are sticking with sterling

Sterling has been rewarding range traders for weeks

Sterling has been rewarding range traders for weeks

The pound is set for its weakest month in five after parliament rejected Brexit deal-lite. Britain could stumble into a chaotic no-deal Brexit after all. Sterling against the dollar has grappled with $1.30 for much of the U.S. session. A while ago It was down 1.5% for the week and 2% lower in March. Against the euro, the pound was pushing a 1% weekly loss.

Sterling won’t find a sustainable footing till Brexit does. Measuring volatility via options, sterling is the most unstable G10 currency. Yet whilst the pound’s range expanded markedly between January and mid-February, it has been a familiar one ever since. And so far, sterling maintains an upward trend this year. Friday’s foray down to high $1.29s was just the seventh below $1.30-$1.33 this month. Since 11th March’s $1.29848 low, Thomson Reuters puts the highest print at $1.3380, on the 14th.

In short, traders brave enough to sell or buy the edge of sterling’s ranges have won. Shallow margins have struggled, but deeper ones have profited, affording bigger stops next time. For sure, there’s no guarantee such success will continue. Brexit could splinter into myriad new possibilities next week. If indicative votes fail and the government sits on its hands and the EU doesn’t intervene, Britain will crash out on 12th April.

In practice though, MPs will first pursue two motions that secured higher votes than Theresa May’s deal: the customs union idea, or a public vote. Theresa May could call an election, but she can’t lead the campaign after promising to resign this week. A further extension would have to be sought first. And the EU has signalled it would be a long one. That is why the pound hasn’t fallen sharply.

Chart: sterling/U.S. dollar – daily [29/03/2019 20:22:00]

Source: Tradingview/City Index

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.