Pound strength won't last

The British pound has remained remarkably resistant considering the uncertainties surrounding Brexit and with the chance of a no deal still high on the cards, some analysts say that the market may be underestimating the potential chaos that lays ahead.
The complacency surrounding positions in the pound can be seen by the implied volatility which has fallen from 15 percent in December to around 10.5 percent at the beginning of February which according to some analysts is a little low considering the potential pitfalls that lay ahead.
One of the Pitfalls is the assumption that a majority of MP’s from the British parliament will do whatever it takes to avoid a no deal Brexit but as the March deadline approaches they may have a change of heart in order to avoid prolonging the chaos that Brexit has brought and to make sure the UK leaves the Eu on time.
This scenario is likely to hit the pound hard.
“Falling volatility in recent weeks is related to the view that a majority of MPs never would accept a no-deal withdrawal, but with the response from EU officials in recent days people might reconsider this view again,” said Richard Falkenhall, a trading strategist at SEB AB.
“The uncertainty should be reflected in implied volatility.” He added.


Analyst

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