Traders get new gauge of `Brexit' risk with vote 3 months away

The Pak Banker - - MARKETS/SPORTS -

Next Wed­nes­day marks ex­actly three months un­til Bri­tain's ref­er­en­dum on its Euro­pean Union mem­ber­ship. That gives an­other op­por­tu­nity for an in­sight into how con­cerned pound traders are about the out­come. The bench­mark three-month gauge of volatil­ity in ster­ling ver­sus the dol­lar will cover the June 23 vote for the first time next week, giv­ing traders an­other in­stru­ment to pro­tect them­selves against price swings. With sur­veys still point­ing to the 're­main' and 'leave' camps run­ning neck and neck, a six-month mea­sure is about 1 per­cent­age point from a five-year high reached last month.

If the 'leave' camp gains

fur­ther ground and "it se­ri­ously looks like a 'Brexit' I would sug­gest volatil­ity moves above 20 per­cent," a level last seen in 2009, said Neil Jones, the Lon­don-based head of hedge-fund sales at Mizuho Bank Ltd. "If we sense a shift in the op­po­site di­rec­tion to­wards the 'in' camp, then three-month ster­ling volatil­ity would be hit hard as the urge to hedge un­cer­tainty would be re­duced sub­stan­tially."

While ster­ling has re­cov­ered from the seven-year low against the dol­lar reached last month, it's still the worst per­former since the start of this year among Groupof-10 peers. The pound has borne the brunt of not just traders doubt­ing the Bank of Eng­land's abil­ity to tighten pol­icy but also the un­cer­tainty sur­round­ing the U.K.'s EU mem­ber­ship. The BOE warned this week that an exit may hurt spend­ing and hold back Bri­tain's eco­nomic growth. The pound climbed for a third week ver­sus the dol­lar, ris­ing 0.7 per­cent to $1.4488 as of 5:05 p.m. in Lon­don Fri­day. It dropped to $1.3836 on Feb. 29. Ster­ling weak­ened 0.3 per­cent in the week to 77.78 pence per euro, and slid 1.3 per­cent against the yen.

Three-month im­plied volatil­ity, a mea­sure of price swings based on op­tions, climbed 78 ba­sis points, or 0.78 per­cent­age point, this week to 10.70 per­cent. The mea­sure reached 11.89 per­cent on Feb. 24, the high­est on a clos­ing-price ba­sis since April 2, with six-month volatil­ity touch­ing 13.64 per­cent the same day.

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