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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.

Naira

Daily Naira Exchange Rates; Thursday, May 6, 2021

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Naira Exchange Rates - Investors King

Naira depreciated further at the parallel market on Thursday as the local currency traded at N485 to a United States Dollar. The Nigerian Naira exchanged at N676 to a British Pound and N585 to a Euro as shown below.

Naira Black Market Exchange Rates

Morning * Midday** Evening *** Final Rates

Date USD GBP EURO YUAN Canadian Australian
NGN BUY/SELL BUY/SELL BUY/SELL BUY/SELL BUY/SELL BUY/SELL
06/05/2021 480/485 665/676 575/585 62/69 395/405 292/320

Bureau De Change Naira Rates

Date

USD

GBP

EURO

NGN

BUY/SELL

BUY/SELL

BUY/SELL

06/05/2021

475/482

663/676

575/587

06/05/2021

475/482

663/676

575/587

Central Bank of Nigeria’s Official Naira Rates

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Forex

CBN Extends N5/$ Incentive Period to Boost Dollar Inflow

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Godwin Emefiele - Investors King

The Central Bank of Nigeria (CBN) has extended the N5 per US Dollar incentive on forex remittance indefinitely to boost liquidity and further deepen economic recovery.

The initiative was scheduled to end on May 8. It was introduced to encourage recipients of dollars to use formal banking channels and help the central bank capture such inflows to boost the stability of the local currency, which has been under pressure after oil prices plunged last year.

“We hereby announce the continuation of the scheme until further notice,” the regulator said in a statement on its website on Thursday.

The naira has been devalued three times since last year after a sharp drop in oil earnings, which accounts for 90% of foreign-exchange inflows, and remittances from workers abroad led to a dollar crunch in the West African nation, which produces the most crude in Africa. The local unit traded for 410.31 on the investors and exporters window, also called Nafex, as of 8:51 a.m. in Lagos.

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US Dollar

Dollar Falls as Risk Appetite Improves, Sterling Dips on BoE

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US Dollar - Investorsking.com

The dollar dropped to its lowest point in three days on Thursday as global market risk appetite improved, while sterling zig-zagged after the Bank of England slowed the pace of its bond-buying, but left interest rates unchanged.

Fewer Americans filed new claims for unemployment benefits last week, data showed, as COVID-19 vaccination efforts and massive amounts of government stimulus led to a further reopening of the economy.

While the U.S. economy has been gaining steam, Federal Reserve speakers on Wednesday downplayed the risks of higher inflation.

Those statements reinforced “the lower-for-longer mentality with regards to interest rates,” making the greenback less appealing, said Neil Jones, head of FX sales at Mizuho.

The safehaven U.S. dollar was last down 0.31% at 91.977 against a basket of peer currencies.

“What we’ve seen early in New York is a little bit of back-and-forth gyrations, just because of the Bank of England meeting,” said Erik Bregar, director and head of FX strategy at the Exchange Bank of Canada.

The Bank of England said it would slow the pace of its bond-buying as it sharply increased its forecast for Britain’s economic growth this year after its coronavirus slump, but it stressed it was not tightening monetary policy.

“They kept their QE target in place but they said they are going to reduce the weekly pace of purchases, but that’s not a signal and so sterling has kind of gone up and down and done nothing at the end of the day,” Bregar said.

The pound was last down 0.08% against the weaker dollar at $1.3900 .

The euro was up 0.47% versus the dollar at $1.2061 , and up 0.65% against the pound, at 86.88 pence per euro.

Investors were also paying attention to elections in Scotland that could herald a political showdown over a new independence referendum.

The Australian dollar fell sharply overnight when China said it would stop its economic dialogue with Australia, but the currency had recovered to trade close to flat on the day as European markets opened.

The Aussie was up 0.1% versus the U.S. dollar at 0.77515 at 1028 GMT, having hit as low of 0.7701 overnight.

The New Zealand dollar also dropped and was down 0.1% on the day.

“The announcements of the formal suspension of the economic dialogue between China and Australia should not have a lasting impact on markets given the already strained relationship between the two ahead of the event,” wrote ING strategists in a note to clients.

The Canadian dollar hit a three-and-a-half year high, helped by oil price gains and the Bank of Canada’s recent shift to more hawkish guidance.

In cryptocurrencies, ether traded around $3,500 after reaching a record high of $3,559.97 on Tuesday, skyrocketing nearly 800% this month.

Bitcoin declined 0.2% to $57,392.75.

The meme-based virtual currency Dogecoin soared on Wednesday to an all-time high, extending its 2021 rally to become the fourth-biggest digital coin.

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