The Information Exchange

Sterling Markets: Active Ahead of UK's EU Referendum

Sterling based markets have seen increased volatility since the UK’s EU Referendum has come in to focus in recent weeks. Year to date, the Pound has been volatile in FX markets and the currency in trade weighted terms is -3.78%, whilst realized volatility in ICE Short Sterling futures has doubled since the start of June. And the contract volume and open interest reflect that, up 40% and 36% y/y on a month-to-date basis.

The price movements in ICE Short Sterling futures this week can be seen in Figure 1.1, which shows 15-minute traded prices for ICE Short Sterling and ICE FTSE 100 futures. Both Sterling implied interest rates and FTSE 100 futures have closed higher in recent trading sessions.

Figure 1.1: High Frequency ICE Sterling and FTSE 100 Futures Prices

Figure 1.2 demonstrates the increased trading activity and rising open interest seen in ICE Short Sterling YTD in 2016 as market participants hedge their price risk against future volatility.

"Sterling market volatility was not unexpected around the EU referendum. With volume up 40% month to day over last June, ICE Sterling futures and options are being used by investors looking to hedge and protect tail risk," says Chris Rhodes, Global Head of Interest Rates, ICE Futures Europe.

Figure 1.2: ICE Short Sterling Futures and Options Open Interest