The British pound fell more than 1% against the U.S. dollar on Wednesday as investors sold riskier currencies, with early results in the U.S. election showing a tight race between Democratic challenger Joe Biden and President Donald Trump.
Overnight implied volatility gauges in sterling have come off the multi-month highs they reached on Monday, indicating the cost of protecting against unexpected near-term moves in the currency has fallen.
Trump was leading in key battleground states, including Florida and Ohio. The question now is whether he can retain the states — Michigan, Wisconsin and Pennsylvania — that sent him to the White House in 2016.
Betting market odds on the election have flipped to favour Trump over Joe Biden, according to data from two aggregators.
“Sterling is now trading as if it’s more open to global growth and global risk … similar to what we see in the Norwegian crown or Australian dollar,” said Simon Harvey, currency analyst at broker Monex.
The Nokkie and the Aussie usually swing in correlation with investor risk appetite and moves in those currencies are often exacerbated by that.
Sterling “used to be trading roughly in line with the euro or Japanese yen” but “now we’re seeing these big moves in cable (sterling/dollar),” Harvey said.
Against the dollar, the British currency fell more than 1.1% to $1.2915 in early London trading. The day before that, it had jumped to $1.3140, its highest in two weeks.
Sterling also weakened 0.6% versus the euro at 90.25 pence.
British government bond prices rose sharply on Wednesday, reflecting the risk-off move in the markets.
For now, traders have put aside the Britain-European Union trade negotiations, with both sides recommending a new round of talks on Brexit begin in London this weekend, The Times reported.
Britain was focused on its future trade ties with the United States. An excellent UK-U.S. trade deal can be done and good progress has been made in reaching one, Britain’s foreign minister, Dominic Raab, said on Wednesday.
Reporting by Olga Cotaga, editing by Larry King