Analysts at CIBC, point out the odds of a no deal Brexit have risen sharply, but implied volatility in GBP/USD hasn’t yet.
“Since PM May announced she was stepping aside and Boris Johnson was placed by pollsters as the favourite to take over, sterling has fallen versus the US$ and euro. But perhaps it could and should have performed worse. Odds for a hard Brexit have doubled since the start of the month. Yet, while implied volatility for six months’ time (covering the Brexit deadline) has risen more than that for three months’ time, both remain well below levels reached toward the end of last year and into the start of this year.”
“Perhaps it would still be wise to take out protection against further volatility, and expect further near-term weakness in sterling.”