“Well, this is great fun”: Currency traders on the risks—and opportunities—of Brexit

Image: REUTERS/Luke MacGregor
We may earn a commission from links on this page.

Charlie Burton is a UK-based foreign exchange trader, but he’s keeping the British pound at arm’s length.

“In recent months, I’ve not traded it. I’ve avoided it,” he says. “The moves that are in the pound can be so erratic. It’s at the mercy of the slightest piece of news in relation to Brexit. To me, as a trader, why do I want to be in positions on a currency pair where it feels like there are things going on which are outside of your control?”

Burton, who has run his own company for the past 17 years, is far from unusual. In markets as diverse as high-end art, London property, and fresh flowers, Brexit’s looming shadow is sending all but the blithest of buyers scurrying away. ”I was down at my brokers in Canary Wharf just last week,” Burton says. “They were saying that they’re seeing lower volumes across the board.”

The value of the pound has been the most direct, immediate way to gauge market sentiment towards Brexit. In general, any development that suggests a continued close relationship with the EU results in a boost to the pound, while anything that signals prolonged uncertainty or a “no-deal Brexit” sinks the value of sterling. At the start of this year, currency transfer company TransferWise introduced a £10,000 limit on cash going in and out of the UK, citing a “higher likelihood of exchange rate volatility” potentially leaving it exposed.

With the current deadline for the UK deciding on something (including a no-deal Brexit) set for April 12, the British parliament remains gridlocked. Although a recent rise in the pound seems to reflect some faith in a softer Brexit option, the risk of a shock no-deal outcome remains in place.

As with the original Brexit vote, market conditions seem to be operating under the impression that crashing out of the EU won’t happen. Speaking to CNBC, Rabobank’s Head of FX Strategy, Jane Foley, suggested that traders are optimistic about a soft or even no Brexit outcome. “I don’t know if it’s because London is a ‘remain’ city or if perhaps because many traders are European, but the way sterling has traded all the way back to 2016 has shown a definite bias,” she told the broadcaster. Recent trading suggested to her “a lot more good news… baked into the price than bad news.”

There’s a troubling precedent here: when the UK voted to leave the EU in 2016, it took markets by surprise, sending the pound plummeting to its lowest point against the dollar in 31 years. In the 1,000 or so days since the referendum, the pound has made a partial recovery, though another historic tumble is still a distinct and decidedly spooky possibility. “[Brexit] has weighed on the pound,” says DailyFX foreign-exchange analyst Nick Cawley. “It’s also kept international investors, longer-term investors, pension funds, things like that, who would usually invest in the UK as a top-class credit, to the sidelines.”

But individual traders, Burton says, may be “attracted to the excitement” of a choppy market. This is his warning to them:

You have to always think: what if we all of a sudden get one of those moves like we had in 2016? You’re not going to be to protect yourself from that and all of a sudden, can you afford to take a big move like that against you? But don’t get me wrong: there are always going to be your gamblers out there who will be thinking, “well, this is great fun.”

Giving the pound a pass is “perfectly reasonable,” Cawley says, at least until the finer points of Brexit are resolved (whenever that is). “When politics and finance collide, there’s always a bit of a mess,” he says.