March 29, 2017
While banks warn Britain’s European Union divorce could drive the pound below $1.20, their option traders have cut the cost of insuring against further falls in the two years it has left inside the bloc.
A company wanting to insure its revenues or financial investments against further falls in the currency could pay 4.8 percent on Tuesday, back to late 2015 levels, for “put” options that start generating a profit if sterling falls to $1.20.
That compares to forecasts from major banks that range from $1.06 to almost $1.50, meaning a move in either direction of almost another 20 percent from current levels of around $1.25.
British Prime Minister Theresa May lodges Britain’s official intent to leave the bloc on Wednesday and London’s currency brokers say the pound’s dramatic fall to levels not seen since the mid-1980s has made companies and ordinary Britons more fearful about sterling than at any time in recent memory.
This article was posted: Wednesday, March 29, 2017 at 7:52 am