Pound Holds above 1.34 but Derivatives Signal Brexit Unease

Sterling clung on to $1.34 on Thursday thanks to broad dollar weakness, but derivative markets were flashing red on doubts that Britain and the European Union can strike a Brexit deal before the country’s transition out of the bloc ends in four weeks’ time.

Negotiators were reportedly stuck on differences over fisheries, state aid for companies and rules to resolve disputes, offsetting any optimism from Britain becoming the world’s first country to approve the Pfizer-BioNTech COVID-19 vaccine.

The EU’s chief Brexit negotiator told member states’ envoys on Wednesday negotiations were reaching “a make-or-break moment”, and they urged him not to be rushed into an unsatisfactory agreement.

Against the dollar, the pound gained 0.2% to $1.3400 in early London trading, not far from a three-month high of $1.3442 hit earlier this week. Versus the euro, the pound was a touch stronger at 90.55 pence.

But beneath the calm in the cash markets, derivative markets were signalling rising unease with the state of Brexit talks with one-month risk reversals for the pound, a gauge of calls to puts for the currency, indicating rising bearish bets.

The ratio fell to 2.7 on Wednesday, levels last reached in April. It was trading around 0.9 two weeks earlier.

Reporting by Saikat Chatterjee; editing by John Stonestreet

Source: Reuters

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