FX round-up: Traders bet the house (Iceland) on Brexit

Sterling staged a small bounce in the last full session of trading ahead of the Easter break, amid a backdrop of survey results pointing to concerns about the outlook for growth both globally and in the UK – with Brexit risks not far from analysts’ minds.

So, while cable was rising 0.35% as of 19:00GMT to 1.4166, that followed two consecutive days of losses that saw the cost of insuring against larger falls surpass similar shifts seen ahead of Scotland’s vote on independence, according to the front-page article in Thursday’s Financial Times.

Over those sessions, the implied volatility for three-month options contracts on cable climbed from 12.0% to above 14.7%, versus a peak of 16.91% in May 2010 and the greater than 25.0% readings seen during the worst moments of the financial crisis, the newspaper said.

Traders had bought at least £11bn pounds-worth of options thus far in 2016 - an amount equivalent to Iceland's GDP - that would yield profits if the pound lost the $1.3502 mark following the 23 June referendum, according to Bloomberg.

More than half of those positions had been taken after the announcement of the Brexit vote, on 20 February.

Those reports came as the reported sales balance in the Confederation of British Industry’s Distributive Trades survey slipped from +10 in February to +7 for March (consensus: +10) – versus a 2015 average of +24.

“There is the possibility that that a recent slowdown in earnings growth and increased worries over the economic outlook could make some consumers increasingly cautious in their spending – and a concern is that sentiment will slide further over the next few months as uncertainty over the outlook intensifies ahead of the 23 June referendum on UK membership of the European Union,” Dr. Howard Archer, chief UK+European economist at IHS Global Insight said in a note e-mailed to clients.

“Slower growth in retail sales this year makes sense, in light of the tougher fiscal squeeze and slower employment growth,” chimed in Samuel Tombs, chief UK economist at Pantheon Macroeconomics, in reaction to the data from CBI.

The other major currency pairs were little changed, with euro/dollar just 0.01% higher to 1.1182 and dollar/yen up by another 0.35% to 112.77.

Among the so-called ‘carry currencies, the Kiwi drifted 0.06% down against the greenback to end the session at 0.6703.

Versus the Aussie, the US dollar was exactly flat at 0.7531.