Why some traders are sticking with sterling

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By :  ,  Financial Analyst

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.

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