Sterling volatility spikes on election uncertainty

Thursday, April 09, 2015

Sterling traded almost 0.7% lower against the dollar today, moving briefly below 1.4770 against the dollar as uncertainty ahead of this May’s general elections saw an increase in volatility. With less than a month to go before voters head to the polls in what has been one of the most closely fought battles for leadership in UK history investors have been struggling to obtain a clear picture on the prospects for the UK economy going forward. The collective head scratching has left the pound in limbo recently, with rangebound trading between 1.47-1.50 broadly dominating activity over the past few weeks.

Global equity markets pushed tentatively higher today with the gains on Wall Street sheepishly following European benchmarks higher despite solid data hinting at a stronger than expected labour market in the US. Eurozone stock indices which traded higher immediately at the open managed to hold on to the day’s gains, in part aided by a weaker euro which was on track to close lower against the dollar for the fourth straight session just below 1.0720. However, the stronger dollar pinned down Wall Street as investors opted to discount better than expected initial weekly jobless claims data which came in 2,000 below expectations at 281K new claims during the week ending April 4th. Prospects for the US labour market continue to improve as the four week moving average hit its lowest level in over fourteen years while continuing claims dropped back to levels last seen at the end of 2000 suggesting the slowdown in hiring activity seen towards the end of March was temporary.

GBPUSD 1-month ATM implied volatility spikes higher

GBPUSDV1M Curncy GBP USD OPT VO 2015 04 09 15 28 37

GBP trades broadly rangebound against USD

GBP Curncy British Pound Spot 2015 04 09 14 57 33

 

Topics: USD, EUR, Employment, GBP
More from: Kash Kamal