There seems to be a bumpy ride ahead for the British pound as tighter lockdown measures are expected to offset Brexit deal optimism that propelled the currency above $1.37 yesterday.
The pound’s rally to May 2018 highs is widely attributed to traders unwinding their short-term hedges, selling their protection against a weakening currency, rather than betting on further gains after Britain stuck a last-minute trade deal with the European Union.
Measures of implied volatility fell from the nine-month highs reached in December after the deal was struck as markets heaved a sign of relief. But some participants remain cautious about the near-term outlook.
“I am not convinced that there is much more upside yet,” said John Goldie, an FX dealer at Argentex. “At these levels, it may be difficult to continue to push higher with further escalations in the Covid numbers and the prospect of longer, more stringent lockdowns to come.”
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