Following the resignation of Britain’s Brexit minister Dominic Raab, the forex, derivatives and money markets are seeing a bloodbath.
Following the resignation of Britain’s Brexit minister Dominic Raab in protest of Prime Minister’s draft Brexit deal, the pound nose dived against the euro and the dollar.
According to Raab, since he felt May’s plan threatens the integrity of the United Kingdom he could no longer support an indefinite backstop arrangement.
His resignation added fuel to the fire, and triggered a selloff of the pound, which was struggling to gain traction after an announcement on Wednesday by May that she had won over her divided cabinet following a five-hour meeting.
Following Raab’s resignation, the forex market saw the British pound plunge 1% against the dollar to $1.2839 while it slid by 1.3% against the euro to 88.23 pence.
“Raab resigning just now changes the ballgame. Hard to be optimistic on GBP in the short term.” said Jordan Rochester, an analyst with Nomura. “But equally Theresa May has survived much worse. It’s whether we get a flood of (ministerial) resignations to follow.”
Concerns such as these were reflecting in the forex derivatives markets where three and six-month gauges of expected volatility in the British currency remained firm while extreme short-dated volatility indicators edged lower.
This uncertainty also cast its shadow in the money markets where investors have all but priced out a rate hike by the Bank of England in 2019.
Bond yields fell across the board with those on benchmark two-year British government debt falling 9 basis points to 0.7%.