Measures of expected swings in the British pound over the coming days jumped to their highest levels in eight months as fears rose that British and European Union negotiators will fail to strike a deal before a transition period ends later this month.
Implied volatility gauges for sterling for overnight and one-week maturities jumped to over 17% and 14% respectively as traders braced for more currency market swings.
Elsewhere, the premium of pound puts to calls rocketed to its highest levels since April, more than doubling over the past two weeks as traders hedged the risks of a no-deal Brexit in the currency derivative markets.
The European Union’s chief Brexit negotiator Michel Barnier was “rather downbeat” about the prospects of sealing a new trade deal with Britain in a briefing for the bloc’s national ambassadors in Brussels on Monday, a senior EU diplomat said.
Reporting by Saikat Chatterjee; Editing by Rachel Armstrong