Sterling Remains Near Two-Year Low

GBP

The pound remained near two-year lows on Wednesday, as markets priced in fresh volatility. The day had seen traders briefly pause their heavy selling of sterling, but growing risks of a no-confidence vote in Johnson’s premiership as soon as the 3rd of September, or an early election meant investors envisage renewed weakness and volatility. This is reflected in the three-month sterling risk reversals, which cover the October Brexit deadline. This derivative market has been showing evidence that investors have been buying more options betting against the pound than ones that back it.

If Johnson can avoid a no-confidence vote when parliament resumes from its summer recess, investors see that this would further increase the likelihood of a no-deal scenario.

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