Expectations for volatility in the British pound plummeted to their lowest levels in more than a year. Which is the main reason for that? EU leaders and the British government last week announced Brexit would be delayed for up to six months.
Sterling implied volatility gauges slipped across the board, extending a recent decline, to their lowest levels since January 2018. No significant Brexit-related developments were expected this week.
Outside the drop in implied volatility measures in the currency derivatives markets, wider moves in the pound were limited. The British currency broadly steady despite robust jobs data.
The pound was broadly steady at $1.3089 against the dollar and flat against the euro at 86.36 pence.
Volatility in the pound has collapsed after EU and British lawmakers removed the risk of a no-deal Brexit last week, prompting traders who had hedged their sterling positions to unwind those bets.
But with the possibility of months of uncertainty in Britain as politicians struggle over how – or whether – to leave the EU, investors are broadly staying away from the pound.
START TRADINGForex – Volatility drops in more than a year lows for sterling
Major currencies traded within narrow ranges.
Traders are also waiting for Chinese gross domestic product data on Wednesday. This may indicate the worst is over for the global economy. Chinese exports and credit data last week signalled some stabilization in economic conditions.
Market volatility has eased to multi-year lows in recent weeks. However, optimism over U.S.-China trade talks and strong Chinese economic data seem to be pushing investors out of safe havens and into riskier currencies, seeking higher yields.
Dollar gains after report of dovish ECB members.
The euro fell 0.2% to $1.128 on Tuesday after reports that a “significant minority” of European Central Bank policymakers think the bank’s economic projections are too optimistic.
The Australian dollar weakened 0.4% to $0.7144 on dovish central bank comments. It dipped after the Reserve Bank of Australia said that a cut in interest rates would be “appropriate” should inflation stay low and unemployment trend higher.
The Japanese yen remained close to 2019 lows against the U.S. and Australian dollars.
Spot gold was down 0.2% at $1,285.39 per ounce, as of 0734 GMT. In the previous session, the bullion dropped to $1,281.96, its weakest since April 4. U.S. gold futures shed 0.2% to $1,288.30 an ounce.
Sources: Reuters, Investing, CNN money
PLEASE NOTE The information above is not investment advice.