February, 23 2016 by lsr team

Brexit risks: more an FX than a rates story

LSR Blog - Brexit risks: more an FX than a rates story

With the prospect of a June referendum hanging over the markets, interest in Brexit trades has heightened. There is currency-market evidence showing that speculative investors have been positioning for a possible Brexit principally in the FX options markets. Indeed, a chunk of decline in sterling during late December and January may be related to the build-up of option-market positioning, since spot market positioning indicators do not show evidence of extreme short positioning so far (see chart above).

Our central view is that sterling will remain the main shock-absorbing channel for Brexit risks. Gilts on the other hand are likely to continue to behave as a safe haven. Click below to find out more on our recommendations for a Brexit trade.