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Pound Volatility Gauge Climbs as Traders Brace for BOE Rate Cut

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Sterling has crumbled to a three-decade low against the dollar after the Brexit vote

A measure of overnight potential price swings for the pound against the dollar approached the highest closing level since Britain voted to leave the European Union in June as traders braced for the Bank of England’s policy decision Thursday, which most economists forecast will bring the first interest-rate cut in seven years.

Sterling fell versus all but one of its 16 major peers as swaps pricing showed a 100 percent chance of a rate cut. While all except two of 52 analysts in a Bloomberg survey forecast a reduction, there are a suite of other measures, including an expansion of its bond-purchase program, which the BOE may adopt to tackle a Brexit-induced fallout which are more difficult to predict.

Some economists said they would not rule out the possibility that the BOE will keep its powder dry at this meeting, as it did in July, while awaiting a clearer economic picture.

“There is quite a lot of speculation regarding what the BOE might do today, so the short-term volatility is to be expected,” said Mark Dowding, a London-based partner and money manager at BlueBay Asset Management LLP. “We doubt the BOE would be opposed to the idea of the pound falling further as it would support the growth outlook, which is deteriorating markedly. We see the pound falling to $1.20 or lower by the end of the year.”

Sterling fell 0.3 percent to $1.3287 as of 7:41 a.m. in London. It dropped to a 31-year low of $1.2798 on July 6. The U.K. currency weakened 0.2 percent to 83.85 pence per euro.

Volatility Climbs

Overnight implied volatility for the pound versus the dollar, a measure of anticipated price swings based on options, was at 31 percent, data compiled by Bloomberg show. It touched the highest level on record on June 23, the day of Britain’s EU referendum, and spiked again before the BOE’s July meeting, its first since the historic vote.

The pound has been the biggest loser versus the dollar among major currencies since Britain voted to leave the world’s biggest trading bloc. The Bloomberg Pound Index, which measures the currency against its major peers, has fallen almost 11 percent since the referendum.

Recent economic data suggested Britain’s decision to leave the EU is taking its toll on business confidence and that’s further supported by a report Wednesday that confirmed U.K. services shrank last month at the fastest pace in seven years. Swaps pricing showed a 100 percent chance of a rate cut by the BOE Thursday, compared with about 15 percent before the vote.

“I expect a 25 basis-point rate cut and 100 billion pounds” in QE, said Richard Benson, managing director and co-head of portfolio investment at Millennium Global Investments in London. “However, it is very popular to be fading the BOE and buy the pound. I do not think it’s the correct trade. The post-Brexit depreciation of around 10 percent seems too little to me.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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eNaira

“Paper Currency Will Soon be Out of Circulation” – CBN Official

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enaira

Delta State Branch Controller of Central Bank of Nigeria (CBN), Mr Godwin Okafor, has revealed that the Paper currency, (Naira) will soon be out of circulation, urging citizens to patronize e-Naira.

Mr Godwin explained this at the famous Ogbogonogo market, Delta, during the market sensitisation on e-Naira.

“We are here at the market today to sensitise the market people on the use of e-Naira. It is fully backed by CBN, unlike Bitcoin which has no legal backing,” he said.

“Paper currency will soon be out of circulation because CBN spent money to print money and people abuse the currency in the market, spraying at the occasion, payment of Okada/tricycle and others and CBN is losing.”

In relation to this, Investors King had reported the President’s statement on the importance of the e-Naira to the country’s economy. President Buhari said the launching of the E-Naira makes Nigeria the first country in Africa and one of the first few countries in the world to launch a digital currency.

He further said he expects the currency to enable the government to send direct payments to citizens eligible for government welfare programs as well as foster cross-border trade and assist in moving many more people and businesses from the informal sector into the formal sector, therefore, increasing the tax base of the country.

Further, he explained that being a digital currency, it has the potential to increase Nigeria’s GDP by $29 billion over the next 10 years.

Dr. Aminu Bizi, a CBN e-Naira expert, said Delta was chosen as the second state after Lagos to sensitize market women on the currency.

He said the use of e-Naira was effective, charges free unlike ATM and POS and cannot be hacked by fraudsters.

Secretary to the State Government, Chief Patrick Ukah, praised the CBN for the e-Naira project in his remarks.

He expressed his satisfaction with CBN programs, characterizing e-Naira as a “laudable” initiative that has elevated Nigeria’s position in international finance.

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Naira

Naira Exchange Rate Dips at Official Market and Black Market

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Naira - Investors King

The Nigerian Naira opened the week lower against the United States Dollar at the Investors and Exporters (I&E) foreign exchange window now adopted as the official forex window and also at the black market.

The local currency opened at N417.30 against the United States Dollar before declining by 0.60% to close the day at N421.50/$ at the I&E window. Forex traders at the window transacted forex worth $70.68 million on Monday.

For banks and international money transfer operators, the Central Bank of Nigeria buys US Dollars at N414.75 and sells at N415.75. The apex bank buys and sells Pounds Sterling N508.2761 and N509.5016, respectively. For the European common currency, the Euro, the central bank sold it at N433.0453 and acquired it at N432.0036 a unit.

At the parallel market popularly known as the black market, the Naira was exchanged at N599 for a United States Dollar in Abuja.

Speaking on why the exchange rate is that high, Abu Abdullahi, a currency trader at Zone 4 in Abuja, said demand for the U.S. Dollar is high despite persistent scarcity.

Crude Oil

Crude oil extended its gain in the early hours of Tuesday on optimism that China, the world’s largest importer of the commodity, would see substantial demand recovery after the latest data pointed to slowing COVID-19 infections in the hardest-hit areas.

Brent crude oil, the international benchmark for Nigerian crude oil, gained $2.69, or 2.4% to $114.24 a barrel at 5 am Nigerian time. The U.S. West Texas Intermediate (WTI) crude rose $3.71, or 3.4%, to $114.20 a barrel, Investors King understands.

“We are seeing a lot of signals that demand will start returning in that region, supporting higher prices,” said Bob Yawger, director of energy futures at Mizuho.

Cryptocurrency

Finally, Bitcoin and other cryptocurrencies shake off Luna-led decline to pare losses on Tuesday. Luna Foundation Guard (LFG) announced in the late hours of Monday that it was discontinuing Luna Coin and stablecoin (UST) operations to launch a new blockchain protocol that would focus on developers and building in general.

The announcement marked the end of one of the most promising cryptocurrency projects and once again reminds the world of how vulnerable the cryptocurrency space is — regardless of what creators say.

Bitcoin gained 1.99% to $30,366 per coin while Eth, a token of Ethereum, XRP (token of Ripple) and Solana appreciated by 3.15%, 3.25% and 4.39% to close at $2,084.27, $0.431744 and $55.86, respectively.

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Naira

Black Market: Dollar to Naira Exchange Rate Remains Under Pressure

1 dollar to naira today on the black market was N585 and purchased at N590 in Ibadan and Lagos

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Naira Exchange Rates - Investors King

The Nigerian Naira remained under pressure against global counterparts in the Nigerian unregulated parallel market, popularly known as the black market. $1 dollar to naira today on the black market was N585 and purchased at N590 in Ibadan and Lagos.

At the Investors and Exporters’ forex window, the Dollar to Naira exchange rate dipped by 0.24% to N419 from N417.70 it exchanged on Thursday.

For the interbank market, Investors King observed that the Nigerian Naira remained largely unchanged at N415.74 against the U.S. Dollar.

Cryptocurrency

Bitcoin to Naira exchange rate remained subdued as the uncertainty surrounding the cryptocurrency space surged to a  record-high following about a 99% plunge in the value of Terra Luna Coin and its stablecoin, UST.

Bitcoin to Naira exchange rate dropped by 1.49% in the last 24 hours to N17.859 million. While Eth, a token of the Ethereum protocol dipped by 0.34% to N1.232 million, down from about N2 million it traded a few weeks ago.

The uncertainty in the cryptocurrency space also dragged on the Binance coin (BNB) as the coin of the world’s leading cryptocurrency exchange platform moderated to N179,834 a coin, a 0.50% decline in its value.

Luna, the cryptocurrency that once again alerted the world to the vulnerability of unregulated space, is presently trading at N0.120 per coin, down from about N57,000 it was trading a week ago.

Crude Oil

Oil prices fell on Monday as the uncertainty surrounding China, the world’s second-largest economy,  continues to drag on the commodity outlook.

Brent crude, the benchmark for Nigerian crude oil dipped by 0.7%, or 72 cents to $110.83 per barrel at 11:45 am on Monday. While the U.S. West Texas Intermediate (WTI) oil fell by 0.5%, or 58 cents to $109.91 a barrel.

The decline was a result of the prolonged COVID-19 lockdown in china. China, the world’s largest importer of crude oil, is said to have instituted lockdown restrictions in about 46 cities to curb the spreading COVID-19.

However, this lockdown has started disrupting China’s economic activity as retail sales contracted by 11% while factory production dropped by 2.9% in the month of April.

Experts are now predicting that despite Russia’s sanction, crude oil prices could drop further if the Chinese lockdown persists.

 

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