Fear of a no-deal Brexit has been driving the price of sterling. What's the price of no-deal?
they tell you, traders struggle to explain short-term fluctuations in the value of currencies. Recently, however, the pound has become an exception. Every time it seems more likely that Britain will leave theThe strength of this link can be measured statistically, thanks to a helpful proxy for the odds of no-deal. On January 16th a market opened on Betfair Exchange, a betting website, on whether Britain will crash out by March 29th, the original Brexit deadline. Punters have bet £3.9m .
The same method can be applied to other markets with strong links to no-deal odds. Among the assets we tested, the biggest winner from no-deal would be gold, with an expected gain of 9%. The worst losers would be domestic British banks, which are heavily exposed to the housing market. For each rise of ten percentage points in Betfair's no-deal price, the average share price of Lloyds andhas fallen by 5.4% of their current value. This implies that no-deal would cut them nearly in half.
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