To Hedge For Brexit, Sell EUR/USD Not GBP/USD - BofA Merrill

To Hedge For Brexit, Sell EUR/USD Not GBP/USD - BofA Merrill

31 March 2016, 08:37
Francis Dogbe
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We argue that the EUR is underpricing the potential economic disruption related to Brexit and shorting EUR/USD is a cheaper way than shorting GBP/USD to hedge for such a possibility. If the UK does exit the EU, we think it is unlikely to only affect the UK, it will likely also affect the Eurozone through both direct and indirect channels. The vol spread between GBP/USD and EUR/USD is at historically high levels. However, our analysis suggests EUR could also weaken if the market becomes more concerned about the possible implications of Brexit ahead of the referendum and potentially weaken more if the UK does exit the EU. In our ... READ MORE
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