The pound has staged a decent rally against the USD and EUR in the past weeks, and 1-month implied volatility has fallen further. But uncertainty on Brexit is extreme. Extension of Article 50, thus reducing the likelihood for UK crashing out of EU, is questionable. We will sit on the sidelines (or go long on dips). Today’s UK construction PMI is likely to fall towards 50.2 from 50.6 in January: evidence that Brexit uncertainty is taking a toll on the real economy.
By Peter Rosenstreich