Pound ‘volatility’ over euro to persist on Brexit concerns

Bloomberg

Buying protection over fluctuations in the pound will remain a relatively costly exercise as Brexit headlines gather momentum and central banks slowly tighten policy.
Uncertainty over the endgame of Brexit talks — key disagreements still need to be addressed — and risks that euroskeptic Conservatives may challenge UK Prime Minister Theresa May’s leadership may support gamma demand for sterling.
The same cannot be said for the euro, as one-month volatility in euro-dollar extended its recent drop as the European Central Bank stuck to its well-communicated patient monetary tightening.
Sterling volatility over the one-month tenor is the highest across the Group-of-10 currencies as the UK and the European Union enter the last stages of the Brexit negotiations. The gauge hit its strongest level since February on Wednesday, almost two percentage points above its year-to-date average, as the two sides were seen preparing for a special summit to sign the Brexit deal in November.
Volatility got a boost in early August on concerns over a no-deal, with the one-month gauge rebounding from a six-month low.
Euro volatility, however, hit a five-week low after President Mario Draghi adopted another balancing act on Thursday.
He downplayed lower growth projections by highlighting that the euro-area economy is still solid enough to cope with global risks, sounding rather upbeat on inflation prospects.
Soft data out of the US keep market pricing lagging that of the Federal Reserve when it comes to higher interest rates, resulting in subdued demand to own euro volatility, which could persist at least until the Fed meeting on September 26.