Appetite for the British Pound Grows in Asia

At a Glance

  • Pound futures trading from Asia has grown 27 percent in last year.
  • Growth driven by Brexit, UK election volatility

As Britons voted in the watershed Brexit referendum on June 23, 2016, to decide whether Britain should part ways with the European Union, the British pound (GBP) was not only the center of attraction in the financial markets of Europe but half way across the world in Singapore as well.

Such was the interest that there were anecdotal accounts of money changers in the island republic experiencing long lines of customers, with many of the businesses running out of the currency.

Overall, the volume of British pound futures during Asian trading has grown by 27 percent since June 1, 2016.

British Pound Futures Volume vs GBP/U.S. Dollar Volatility

British pound futures have also found significant interest during  the hours stretching between 8 am to 8 pm Singapore time.  In fact, there were four key moments over the past year when the trading of British pound futures spiked significantly in Asia during event risk related to the UK.

Brexit: The highest volatility day was during the Brexit referendum, which was also the highest overall volume day in GBP futures. On June 24, 2016, the day after the Brexit vote, British pound futures volume reached a record 506,000 contracts traded during Asian hours.

“Freest Possible Trade”: January 17, 2017 comments by May about the UK exiting the European single market helped send GBP futures to their third highest volume day of the past year with more than 337,000 contracts traded during Asia hours.

Snap Election Called: On April 18, 2017 Prime Minister Theresa May called for a snap election on to be held June 8. For May, the vote was aimed at bolstering her Conservative Party’s majority in parliament and thereby strengthening her hand during Brexit negotiations.  The result in GBP futures was the fourth highest volume day of the past year with 283,000 contracts traded. during Asia hours.

UK Election: The decision by May backfired and led to the Tories losing their majority. May is able to continue governing through a coalition with the Democratic Unionist Party (DUP).  On June 9, CME British pound futures recorded their second highest volume day during Asian trading hours at 344,000 contracts.

 

We can also see big changes in the daily settlement price for these four days.  The two highest overall volume days for British pound futures in the last year coincided with the GBP weakening vs the U.S. dollar.

Among the top products traded from 8am-8pm Singapore Time, British pound futures accounted for the highest percentage of total average daily volume in May this year.

The UK election resulted in a hung parliament, complicating Britain’s negotiations over exiting the European Union. CME Group Chief Economist Blu Putnam wrote following the election that there may be more to come.

“Longer term the outcome might create some additional uncertainty for the pound, in both directions. The result throws Brexit into doubt,” he wrote.

Traders everywhere, including Asia, will be watching.

Jabir Patel is Senior Business Intelligence Analyst at CME Group.

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