Huge range of sterling forecasts clouds horizon for Brexit talks

Wed Mar 29, 2017 6:38am EDT
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(This story first published on March 28, was refiled to amend headline)

By Patrick Graham

LONDON (Reuters) - While banks warn Britain's European Union divorce could drive the pound below $1.20, their option traders have cut the cost of insuring against further falls in the two years it has left inside the bloc.

A company wanting to insure its revenues or financial investments against further falls in the currency could pay 4.8 percent on Tuesday, back to late 2015 levels, for "put" options that start generating a profit if sterling falls to $1.20.

That compares to forecasts from major banks that range from $1.06 to almost $1.50, meaning a move in either direction of almost another 20 percent from current levels of around $1.25.

British Prime Minister Theresa May lodges Britain's official intent to leave the bloc on Wednesday and London's currency brokers say the pound's dramatic fall to levels not seen since the mid-1980s has made companies and ordinary Britons more fearful about sterling than at any time in recent memory.

In the heart of London's Canary Wharf financial district, dollars and euros were in high demand or sold out at several retail currency kiosks on Tuesday.

"Our average daily volume was up about 50 percent yesterday. We have people who are buying a house in Spain taking half of the amount out now just to make sure they lock in at these rates," Mark Horgan, chief executive of corporate and consumer foreign exchange firm Moneycorp, said.

And the use of currency hedging products by small businesses has risen by almost 60 percent since Britain voted to leave the EU in June, banking researchers East and Partners say.   Continued...

A pile of one pound coins is seen in a photo illustration shot June 17, 2008.  REUTERS/Toby Melville/Illustration/File Photo