Business Irish

Thursday 29 September 2016

FX options show sterling falling beyond EU vote date

Eshe Nelson and Anooja Debnath

Published 26/03/2016 | 02:30

Concern the UK will leave the world's biggest single market has weighed on the pound this year. Photo: Reuters
Concern the UK will leave the world's biggest single market has weighed on the pound this year. Photo: Reuters

Irish exporters face an increasingly tough time over the coming months as the pound sterling is set to extend what is already the biggest decline among rich-world currencies, beyond the day of the referendum that could lead to a Brexit.

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Sterling has already dropped more than 10pc against the euro in recent months and at least 2pc versus all of its Group-of-10 counterparts this year, and options prices suggest it will fall further against every one over the next three months.

That would see the UK currency's losses extend beyond June 23, when the public votes.

"We're in a situation where it's the Brexit risk that will dominate markets," said Ned Rumpeltin, European head of currency strategy at Toronto Dominion Bank in London. Though economic data are showing an improvement, "what captures all the headlines is the risk of the referendum", he said. "Longer-term, the pound is going to struggle."

Concern the UK will leave the world's biggest single market has weighed on the pound this year. There's a premium for options protecting against sterling losses over contracts betting on a gain in the case of every G-10 currency. The biggest is the 5.6 percentage-point premium for three-month options hedging a slide versus the yen, data compiled by Bloomberg shows.

The gap on pound-dollar contracts widened to a record 4.4 percentage points. (Bloomberg)

Irish Independent

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