The British pound on Wednesday traded at its lowest level in more than two years, as concerns about the prospect of a hasty exit from the European Union continued to pressure the U.K. currency.
The pound GBPUSD, +0.1854% fell as low as $1.2382 vs. the U.S. dollar, down from $1.2407, marking the lowest level since April 2017.
Against the euro, the pound GBPEUR, +0.0632% fell as low as €1.1048, down from €1.1068.
Boris Johnson, the front runner to become the leader of the Conservative Party and therefore prime minister, was reported by Sky News to be considering suspending parliament for two weeks to prevent it from blocking a Brexit. His campaign said that it’s an option but that nothing has been decided.
Another issue is that both Johnson and his Conservative Party rival, Jeremy Hunt, have said they will not accept the so-called Irish backstop deal agreed by the current prime minister, Theresa May, with the European Union. The winner of the Tory party’s vote is expected to be announced on July 23.
“The rising perceived probability of a disorderly Brexit after the Oct. 31 deadline is reflected in the options market, with the sterling implied volatility curve heavily kinked around the deadline date (that is 3-4 month tenors) vs the close-to-normally upward sloping shape of the curve two to three months ago,” said strategists at ING in a note to clients.
The data released Wednesday met economist expectations. Consumer prices in the 12 months ending June stayed at 2%, right at the Bank of England’s target.
Several of President Trump’s senior economic advisers believe he plans to push forward with 25 percent tariffs on close to $200 billion in foreign-made automobiles later this year, three people briefed on internal discussions said.
Trump wants to move forward despite numerous warnings from GOP leaders and business executives who have argued that such a move could damage the economy and lead to political mutiny.
But Trump has become increasingly defiant in his trade strategy, following his own instincts and intuition and eschewing advice from his inner circle. He has told advisers and Republicans to simply trust his business acumen, a point he tried to reinforce Wednesday morning in a Twitter post.
In a late development, Trump and E.U. president Jean-Claude Juncker announced a limited trade deal meant to ratchet down tensions. So…that’s good, I guess.
Besides some individual standouts in the Multi- Strategy and Discretionary categories, the Volatility trading sector were the rock stars of 2016. This space is growing each year, and becoming more diverse in the process.
Where we used to see a steady diet of vanilla option selling here a space has added new strategies incorporating VIX futures, with what once was a purely short volatility space rapidly becoming more and more of a volatility trading space, able to profit from either increases or decreases in volatility.
For more on how this sort of trading works (buying and selling the fear gauge futures), we outline it all here and here. The short version is that each Volatility manager tends to approach the VIX from a market structure standpoint – trying to capitalize on its unique tendencies of being a “quadrative” of sorts, (a derivative of an index of a derivative of an index) where arbitrage opportunities can exist when one of the four components of that “quadrative’ doesn’t keep pace with the other legs.