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Pound Traders Brace for Months of Swings as EU Vote Called

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Barclays UK

Pound traders are expecting little respite from the currency’s volatility after U.K. Prime Minister David Cameron called a referendum on the nation’s European Union membership for June 23.

The pound jumped the most in more than two weeks against the dollar after Cameron finalized a deal with EU leaders on Britain’s relationship with the rest of the 28-nation bloc in the closing hours of trading in New York on Friday. Still, a measure of traders’ expectations for price swings in the pound against the euro during the next six months remained at the highest since 2011. The deal Cameron secured means he is recommending the U.K. should stay in the EU, he said on Saturday.

Although the announcement of the date removes one aspect of ambiguity for traders, they now face months of polls and campaigning that could boost volatility further. With traders already pushing back bets on the timing of a Bank of England interest-rate increase, the prospect of Britain leaving the world’s largest single market had been causing further concern, helping push down the pound against most of its Group-of-10 peers this year.

“The pound’s weakness is a product of uncertainty of the U.K.’s ongoing membership of the union, not the timing of the poll,” said David Page, a senior economist at AXA Investment Managers in London. “Weakness is likely to reflect any increased perception of the likelihood to leave and as such is likely to be a constant feature over the coming months.”

The pound climbed 0.5 percent to $1.4406 as of 5 p.m. New York time on Friday. While the currency is down 2.2 percent this year, it has rebounded from an almost seven-year low of $1.4080 reached in January.

“The pound is likely to bounce near term” as investors see the deal “as increasing the prospects of Britain voting to stay in,” said Mansoor Mohi-uddin, senior markets strategist in Singapore at Royal Bank of Scotland Group Plc. Still, “as we get closer towards June 23, investors are likely to become increasingly nervous,” he said.

Higher Volatility

Sterling added 0.2 percent to 77.29 pence per euro on Friday, paring its drop this year to 4.6 percent. Six-month implied volatility for the pound versus the euro, a measure of price swings based on options, was at 12.10 percent, the highest level since September 2011, based on closing prices.

The uncertainty over the vote hasn’t had the same impact on equities. While U.K. stock swings have increased this year, FTSE 100 Index implied volatility remains lower than for the euro area. And the weakening of the pound has actually helped the gaugeperform better than any other major market in the region. Even small- and mid-cap companies, deemed more at risk in a “Brexit” scenario, have fallen less than their European peers. Pictet Asset Management says U.K. stocks are not reflecting the true danger of an exit.

Goldman Sachs Group Inc. said earlier this month that if Britain quits the EU sterling could fall to $1.15-$1.20 — levels last since in 1985. HSBC Holdings Plc said in January that a forecast for a jump to $1.60 by year-end relied on the nation remaining in the 28-member club.

“The uncertainty will persist” into the vote, said Kit Juckes, a global strategist at Societe Generale SA in London. “Sterling was the weakest major last week and probably remains under pressure.”

Ministers’ Stance

Traders’ attention may now turn to the stance of ministers who, while given a free hand by Cameron to campaign against the government’s position, were asked not to announce their intentions until after the cabinet meeting.

Cameron was given a fillip on Saturday when Business Secretary Sajid Javid and Home Secretary Theresa May, both seen as wavering over which way to vote, threw their support behind the campaign to remain. Six ministers, including Justice Secretary Michael Gove, were later pictured at the headquarters of one of several groups campaigning to leave the EU.

The support of London Mayor Boris Johnson for either side may prove key to sterling, given his popularity with the British public, according Morgan Stanley. Should he choose to publicly back the exit campaign, “the pound should come under immediate pressure,” analysts led by Hans Redeker wrote in an e-mailed report Friday.

/Bloomberg

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Naira

Naira Drops to N444 Against the United States Dollar at Official Forex Window

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Naira Notes - Investors King

Efforts to halt plunging Nigerian Naira are yet to start crystalising despite a series of initiatives implemented to prop up the value of the embattled currency.

The local currency dropped to N444 per US Dollar at the forex spot market on Tuesday before paring losses to close at N415.10.

On Wednesday, the Naira opened at N414.44 against the United States Dollar at the official forex window managed by the FMDQ Group. Investors transacted $200.74 million during the trading hours of Tuesday.

Weak foreign exchange generation despite crude oil trading at $86 per barrel has impeded the Central Bank of Nigeria’s ability to service the economy with enough forex given the structure of the economy as an import-dependent nation.

Lack of forex liquidity has escalated the cost of goods and services in Africa’s largest economy, pushing Nigeria’s inflation rate to 16.63 percent year-on-year in September 2021 and new job creation to a record low.

The unemployment rate rose to 33.33 percent while household savings is presumed to be at an all-time low going by the NDIC.  The Nigeria Deposit Insurance Corporation (NDIC) on Monday said over 99 percent of all the bank accounts in Nigeria have less than the N500,000 Maximum Insured Limit (MIL) of the corporation.

That statement further confirmed Nigeria’s economic challenges. The rising cost of importations and production due to various tariffs imposed on imported goods and the ongoing fight between herders and farmers across the country are some of the factors weighing on Nigeria’s economy and subsequent the nation’s currency, the Naira.

Producers, especially those that depend on imported goods, are now struggling to pass the increase in price to customers who are battling low wages/earnings, rising unemployment, etc.

At Sabo in Mokola, Ibadan, the United States Dollar was exchanged at N563 on Tuesday, even though the Central Bank of Nigeria exchanged it at N411.02 as shown below.

 

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Naira

Naira to Dollar Exchange Rate Improves Slightly to N414.07/US$1

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Naira Notes - Investors King

Naira to Dollar exchange rate improved further at the official foreign exchange window on Wednesday despite the ongoing economic uncertainties.

The local currency opened the day at N414.18 to a United States Dollar before closing at N414.07, representing an improvement of 0.16 percent gain.

During the day, Naira plunged to as low as N442 to a United States Dollar at spot fx market. While at the fx future market it was fairly stable at N419. Forex traders exchange $334.97 million on Wednesday.

However, the Central Bank of Nigeria published exchange rates revealed that the United States Dollar was sold at N410.89 on Wednesday to banks. The British Pound and Euro were sold at N565 and N477.74, respectively.

Central Bank of Nigeria’s Foreign Exchange Rate

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Naira

Naira Gained 0.08 Percent to N414.73 Against the United States Dollar on Monday

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Naira - Investors King

The Nigerian Naira gained against the United States Dollar on Monday after falling to a record low of N422 per US dollar on Friday at the official forex window.

The local currency opened at N414.46 to a United States Dollar, a 0.15 percent improvement from Friday’s closing price.

Naira dropped as low as N425 to a United States Dollar at the spot forex market and to N429.50 at the forward forex market before closing at N414.73 to a United States Dollar at the spot forex market. Forex traders traded $172 million at the official forex window on Monday.

Forex scarcity across key foreign exchange segments and the decision of the central bank of Nigeria to halt the sale of forex to Bureau de Change operators continue to impede forex access in Africa’s largest economy.

Vice President Osinbajo had suggested that the apex bank should look to adopt a new forex policy to better close the gap between the black market and official rates. At the unregulated black market, traders are selling at N570 to US dollar.

This, the Vice President said was what was sustaining the black market.

For context, the Vice President’s point was that currently the Naira exchange rate benefits only those who are able to obtain the dollar at N410, some of who simply turn round and sell to the parallel market at N570. It is stopping this huge arbitrage of over N160 per dollar that the Vice President was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit!, stated Laolu Akande, Senior Special Assistant to the President on Media & Publicity, Office of the Vice President.

“This was why the Vice President called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption.”

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