This is going to be an extremely volatile week with the referendum just a few days away now on Thursday 23rd June. The most recent polls have shown the Remain campaign clawing back losses. I remain sceptical about the accuracy of the polling, as I am unwilling to assign too much confidence in the polling companies so soon after the election fiasco. It seems the market will take any information and run with it. So it’s not been a great surprise this morning to see a massive bounce in GBP/USD on the back of the polling update. There is a huge amount of uncertainty and this is reflected in the quadrupling of trading margins, and wider spreads over the next few days.
Even quotes for GBP/USD option premia have to be requested. If a sterling cross moves to your advantage, get your trade done, the situation might change at the drop of a hat….or at least a small sample poll update!
We’re starting to see evidence of convergence in the USD/NGN market as one would expect. Last week announcement by the central bank (CBN) that a more flexible exchange rate regime would be implement has resulted in the parallel market rate declining and the NDF market rising. Obviously there are inter-temporal issues when comparing the two markets – one is spot, and the other is the forward market – but this is convergence none-the-less. Both foreign investors and locals are taking a somewhat wait and see approach trying to gauge where fair value is, but these moves can only give confidence to investors that a new more transparent reality is evolving. A reality that can only be a positive for the Nigerian economy with businesses able to more effective plan without fear of a capricious central bank or government to stymie future assumptions. It is to be hoped that this new market consciousness extends to the import restrictions that the CBN has still not removed. If Nigeria is to develop any kind of functional manufacturing industry it needs to be free from senseless interventions.
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