After several tense months the British pound seems to be facing more peaceful times. The volatility in the British pound, which jumped to the highest level since the financial crisis after the Brexit referendum, fell to its lowest level since early October. British currency offset some of the losses after the referendum by the end of June and so far is the only currency appreciating against the US dollar in November.
The economy also assist, as stable consumer spending oppose the gloomy forecasts for late next year. Moreover, the surprising election of Donald Trump for president of the United States and rising political risks in Europe cause traders to focus on something other than the potential exit of the UK from the European Union.
Sterling’s trade weighted index, compiled by the Bank of England, has risen by more than 5% in the last 30 days. If it holds its rise for another week, November will be the most positive month for sterling since January 2009.
Economists survey shows that they expect the British currency to drop to 1.22 USD per GBP in March 2017 from around 1.24 USD this week.
The British pound is seventh by volatility in currency group G10, as in the beginning of this month was second. The expected quarterly volatility between pounds and dollars fell to 10.1%, which is the lowest since October 3. On the day after the Brexit referendum it was 21%.
Extremely short positioning among speculators could also be driving sharp upward movements in the pound. When investors short a currency, they have to then purchase it to close their position, a process known as short covering. If many investors behave in that way at the same time, it could drive the pound higher.