Currency traders are seeing increased demand for derivatives that enable holders to position for a stronger pound, as improved chances of a Brexit trade deal start to push the risk of negative interest rates off the table.
FILE PHOTO: A British pound note is seen in front of a stock graph in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration/File Photo
“A month ago I would’ve said Boris Johnson has offended the Europeans to a point where they don’t want to negotiate with him,” said Mark Holman, CEO at TwentyFour Asset Management, adding that talks seemed to be getting “warmer and warmer”.But many prefer to position via options -- derivatives which allow holders to buy or sell at a pre-agreed price within a stipulated time period.
Another gauge, risk reversals, which measure the ratio of pound calls over puts, showed that a month ago investors were the most bearish on sterling in six months, at 2.3. This has since halved. That’s nowhere near early August levels, when $1.5 billion worth of options were setting limits between $1.35-$1.40.
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