By Saikat Chatterjee and Elizabeth Howcroft

LONDON (Reuters) – Currency traders are seeing increased demand for derivatives that enable holders to position for a stronger pound, as improved chances of a Brexit trade deal start to push the risk of negative interest rates off the table.

Sterling is 4% off 2020 highs of $1.35 hit last month when Britain appeared set to exit European Union trading arrangements with no alternatives in place, a catastrophe that could force the Bank of England to cut rates below 0%.

But recent positive news around Brexit talks have flipped markets into bullish mode, lifting sterling back toward $1.30.

“A month ago I would’ve said (UK Prime Minister) Boris Johnson has offended the Europeans to a point where they don’t want to negotiate with him,” said Mark Holman, CEO at TwentyFour Asset Management, adding that talks seemed to be getting “warmer and warmer”.

Goldman Sachs is advising clients to buy sterling, predicting a trade deal by November.

But many prefer to position via options — derivatives which allow holders to buy or sell at a pre-agreed price within a stipulated time period.

Last week for the first time in two months, “call” volumes for sterling surpassed “puts”, implying greater demand for options conferring the right to buy, rather than sell the pound, data from the Depository Trust & Clearing Corporation (DTCC) show.

Morgan Stanley’s proprietary tracker also showed clients bought more pound calls versus the dollar and euro last week.

Another gauge, risk reversals, which measure the ratio of pound calls over puts, showed that a month ago investors were the most bearish on sterling in six months, at 2.3. This has since halved.

(Graphic: Risk reversals

And implied sterling volatility — an option market measure of expected price swings — has slipped off

By Shashank Nayar

Oct 6 (Reuters)A firmer pound pulled down UK’s exporter-heavy FTSE 100 on Tuesday after three sessions of gains, while Restaurant Group surged after it forecast upbeat sales numbers.

The blue-chip index .FTSE dropped 0.5% and lagged its European peers, as the pound rose above $1.30 for the first time in three weeks with investors scaling back bets on UK interest rates turning negative. GBP/

Midcap stocks .FTMC rose 0.4% as gains in consumer and industrial firms outweighed losses in healthcare companies.

A survey showed Britain’s construction industry unexpectedly picked up speed last month, helped by a post-lockdown bounce in the housing market.

“The market is keeping trades on hold for now and is waiting out for more macro data, with traders also focussing on Prime Minister Boris Johnson’s speech and a parliament vote to lift pub curfews due later in the day,” said Keith Temperton, a trader at Forte Securities.

Britain will prioritise trying to save jobs over tax rises while the COVID-19 pandemic batters the economy, though record borrowing and a $2.6 trillion debt pile cannot be sustained for ever, finance minister Rishi Sunak said.

A raft of stimulus measures and re-opening optimism have helped the FTSE 100 bounce from its March lows.

However, rising economic stress due to a resurgence of COVID-19 cases and a stronger pound have kept the index in a tight range, with investors hoping for more support as the economy faces its worst recession in more than 300 years.

Frankie and Benny’s owner Restaurant Group RTN.L gained 4.95% after it unveiled improved like-for-like sales numbers for the period since the start of July.

Premier Oil PMO.L jumped 10% after it reached an all-share merger deal with oil exploration and production company Chrysaor.

(Reporting by Shashank Nayar in Bengaluru;

Graphic: World FX rates in 2020

Graphic: Trade-weighted sterling since Brexit vote

LONDON, Sept 29 (Reuters)Sterling hit a one-week high on Tuesday despite a stronger dollar as three days of negotiations on Britain’s trade agreement with the European Union began in Brussels.

Talks on a joint legal text of trade agreement, which will also cover energy links and transport, will last until Friday morning.

“This week is a very, very important week for the pound as we slowly grind toward the day of true Brexit,” according to MUFG analysts.

“In negotiations and given the political capital that (Prime Minister Boris) Johnson is losing in the fight against COVID we see the balance as having shifted more in favour of a deal.”

Sterling was trading 0.4% higher at $1.2878 GBP=D3. In contrast, most other currencies, including the euro and the yen, were weaker against the dollar. It was also 0.2% higher versus the euro at 90.71 pence EURGBP=D3.

Bank of England Deputy Governor Dave Ramsden said on Monday he thought the floor for the central bank’s key interest rate was 0.1%, but the BoE could consider going below zero to help the economy through its coronavirus crisis, lifting the pound

“Ramsden’s comments may have prompted some GBP-traders to scale back their negative-rate bets, and that’s why the pound rallied,” said a note from JFD Group.

Money market futures contracts expiring in February 2021 were back to zero after briefly pricing in negative interest rates last week.

(Reporting by Maiya Keidan; editing by Saikat Chatterjee and Larry King)

(([email protected]; 44 207 542 1594; Reuters Messaging: [email protected]))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source Article

(Bloomberg) —

The pound surged the most in six months on speculation that successful Brexit trade negotiations this week could help shield Britain from a messy rupture with the European Union.

Sterling outperformed major currencies to rise as much as 1.4% to $1.2930, as the markets digested a more conciliatory tone from officials on both sides. Some investors are betting that despite some lingering tensions, the U.K. isn’t in a position to pursue political brinkmanship for much further.

chart: Sterling outperforms peers on hopes for a Brexit deal

© Bloomberg
Sterling outperforms peers on hopes for a Brexit deal

Read More: Brexit Talks Enter Key Week With Time and Trust Running Out


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“Given that we are in the middle of the Covid crisis, I think it is well understood that the U.K. cannot make good on a threat to end up with no deal,” said Mark Dowding, chief investment officer at BlueBay Asset Management.

“Our sense was that the U.K. government would always try and create an impression of crisis, so that when they agree a deal (albeit a very skinny one) they can herald this as a triumph.”

Britain risks crashing out of the EU’s single market without a trade accord at year-end if a deal isn’t reached. The EU’s chief Brexit negotiator Michel Barnier and his British counterpart, David Frost, will hold a final round of scheduled discussions starting Tuesday.

If they make enough progress by Friday, they could embark on a two-week period of intense discussions — the so-called Brussels “tunnel” — to hammer out an accord in time for a summit of European Union leaders on Oct. 15.

BlueBay’s Dowding predicts an agreement “in principle” within two weeks. He switched to a long position on the pound and expects sterling to rally about 3% to 88 pence against the euro by mid-October.

chart, bar chart: Brexit Boost

© Bloomberg