Pound Slides as U.K. Political Turmoil Flares `Brexit' Concerns

The pound fell from a one-month high versus the dollar after a senior member of the U.K. government resigned on Friday, deepening the rift in the ruling Conservative party just three months before the referendum on Britain’s European Union membership.

Sterling weakened against all but one of its 16 major peers and was the worst performing currency among Group-of-10 nations after New Zealand’s dollar. Iain Duncan Smith, a former leader of the Conservatives and a prominent figure supporting the campaign for Britain to leave the EU, a so-called “Brexit Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Read this Term,” criticized the government on its proposed cuts to disability benefits while taxes for higher earners and companies were being decreased.

The difference in a measure of Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term in the pound versus the dollar over the next 12 months and the equivalent gauge in the euro against the U.S. currency rose to the most in more than seven years on Monday.

The British currency was also weighed down by a report from the Confederation of British Industry that said leaving the EU would cost the U.K. 100 billion pounds ($144 billion) in lost economic output and 950,000 jobs by 2020. The referendum is scheduled for June 23.

The pound “trended weaker against the dollar and euro due to the political trembling over the weekend,” analysts at Royal Bank of Canada in London, including senior U.K. economist Sam Hill, wrote in a note to clients. The CBI study “suggesting that the U.K. would be significantly worse off under an EU exit scenario” also hurt sterling, they wrote.

Pound Slides

The pound fell 0.5 percent to $1.4399 as of 4:06 p.m. London time, after climbing to $1.4514 on March 18, the highest since Feb. 16. Sterling weakened for the first time in three days versus the euro, dropping 0.4 percent to 78.18 pence.

The spread between the one-year implied volatility, a measure of price swings based on options, in the pound versus the dollar and that on the euro against the greenback climbed to 2.27 percentage points, its highest since December 2008 on a closing-price basis.

“Ultimately it’s going to be a volatile period for sterling,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “We don’t know what the upshot of Iain Duncan Smith’s resignation will be, but clearly the reaction in the market is the increase in uncertainty.”

--With assistance from Vassilis Karamanis To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net. To contact the editors responsible for this story: David Goodman at dgoodman28@bloomberg.net, Keith Jenkins

By: Anooja Debnath

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