Sterling maintains gains on hopes of Conservative election victory

Tory win could see Brexit deal approved by parliament and Britain exiting the EU on January 31st

The demand for protection against sterling volatility has spiked, implying severe currency moves around election time. Photograph: iStock

The demand for protection against sterling volatility has spiked, implying severe currency moves around election time. Photograph: iStock

 

Sterling was pinned near a six-month high against the euro on Tuesday, with traders remaining of the view that the Conservative Party will get a majority in parliament following the general election next month.

If the Conservative were to win a majority on December 12th, expectations are that the Brexit deal agreed with Brussels last month would be approved by the House of Commons and that Britain would exit the EU on January 31st, ending 3½ years of uncertainty.

Sterling was last trading neutral at $1.2957 and at 85.43 pence against the euro, close to a six-month high of 85.22 pence reached on Monday.

However, one-month implied volatility gauges for sterling show that investors remain nervous about the outcome of the election.

Options prices are at their highest since mid-October, and have nearly doubled in value since the beginning of the month. This essentially shows that demand for protection against sterling volatility has spiked, implying severe currency moves around election time. – Reuters