Hedging against falling pound rises to post-Brexit levels

The pound's hedging premium recorded on Friday was the highest since the Brexit referendum vote in June 2016. This signal suggests that traders' expectations are associated with further losses. According to the data showing the options, the pound is expected to fall to parity with the dollar by the end of the year, and this probability is at the level of 24%.

The pound's historic drop to a low of 1.0350 last week is due to growing concerns about the state of the public financial system and accelerating inflation due to the British government's tax cut plan.

Despite the fact that the Bank of England's bond purchases on Wednesday helped the pound out of a slump, analysts' forecasts, which were also influenced by the statement made by the incumbent Prime Minister Liz Truss to follow the chosen path of fiscal policy, are associated with a subsequent decline. 

In their memo, strategists of Australia & New Zealand Banking Group Ltd. Brian Martin and Mahjabeen Zaman said that the volatility of the British currency is an important signal of the need for effective policy implementation, especially in the current circumstances of rising inflation and weakening asset prices. They also noted that the UK should get ahead of the market anxiety in setting policy.