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Currencies

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Banks

RBS falls 2% after failing BoE stress test

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

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Banks

Carney: UK is ‘investment banker for Europe’

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Categorized | Currencies

Traders love big round numbers


Posted on August 31, 2016

File photo dated 21/05/16 of a 1 euro coin and a One Pound coin placed on a backdrop of The European flag, as Sterling found some respite in overnight trading on Tuesday after taking a Brexit battering that saw it fall to a 31-year low. PRESS ASSOCIATION Photo. Issue date: Tuesday June 28, 2016. The pound rose 0.7% to 1.33 dollars, a rebound from Monday's 1.31 dollars, its lowest level since 1985. See PA story CITY Pound. Photo credit should read: Yui Mok/PA Wire©PA

Traders love big round numbers.

They provide a talking point, and just by dint of their huge fat simplicity can sometimes seem to display a gravitational pull on the market.

    Once reached, or breached, they can provide more fun as those stops placed around the figure get swiftly triggered, exacerbating momentum.

    Popular right now is the idea that the ultimate fallout from the Brexit vote will help deliver a euro to pound exchange rate of 1.

    But with EUR/GBP currently about £0.85, how feasible is parity anytime soon?

    Not very, many analysts reckon.

    Helping sterling weaken to one euro would be a more aggressive than expected easing by the Bank of England relative to the European Central Bank, argue pound bears.

    But Bank of America Merrill Lynch says such policy divergences are unlikely to be so great that they deliver a 15p fall for sterling, especially since, against a number of metrics, the UK unit is not especially overvalued right now.

    Further more, the market is already very negative on the pound.

    As Capital Economics notes, the record net short positions in sterling futures represent “selling that has already taken place”.

    Still, from the euro’s side there seems to be a growing view that the ECB next week may not deliver the aggressive easing the market expects.

    If so, that may be expected to boost the euro, yet traders know the single currency sometimes can react counter-intuitively to ECB actions.

    jamie.chisholm@ft.com