Aud/Usd

[GreenApple]

After a UK budget this week which the Confederation of British Industry said contained "more treats than tricks for business", PM Theresa May will follow up today by meeting around 120 chief executives and international investors to discuss Brexit and the economy.

[GreenApple]

There are signs of growing stress in options markets for trading sterling against the euro, too.

Three-month and six-month risk reversals headed this month towards levels seen in August, when bearish sentiment on the pound was at its highest since October 2016.

[GreenApple]

One-month risk reversals, however, are only at their highest levels since June 2017, suggesting investors are not as panicked about the very short-term outlook for the pound as they are over the outlook into 2019.

[GreenApple]

According to FENICS data, three and six-month risk reversals this month hit their highest level since July 2016, shortly after the June referendum vote. That indicates greater demand for put (right to sell sterling) options versus calls (right to buy).

[GreenApple]

“So it’s quite plausible that we go into Christmas with a first vote failed and the focus of the second attempt being something to look forward into the new year. That’s not great,” he said, adding that he expected a deal to pass through parliament eventually.

[GreenApple]

The arithmetic did not favor May getting an agreement through parliament, he said. A failure at the first attempt would spark weeks of “acrimonious posturing, brinkmanship, threats, people worrying about a leadership contest, general election, Jeremy Corbyn” just as liquidity thinned at year-end, he added. Corbyn is leader of the opposition Labour Party.

[GreenApple]

And a parliamentary rejection could plunge Britain into a sudden, disruptive exit, reaping havoc on the economy as the UK fell back on World Trade Organization rules for trade with the EU, its largest trading partner.

[GreenApple]

Even if Britain can agree a deal, Prime Minister Theresa May will need to get parliamentary approval — far from guaranteed given her Conservative party lacks a majority and factions within her party oppose her approach.

[GreenApple]

Sterling neared 15-month lows under $1.27 on Tuesday after Standard & Poor’s warned Britain it was likely to endure a long recession with a no-deal Brexit. The currency recovered slightly on Wednesday.

[GreenApple]

Financial options knows as risk reversals - which measure demand for options that give investors the right to sell sterling at a future date versus options that give them the right to buy - show traders are increasingly concerned about the pound tumbling between December and April.