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British Pound Futures Volatility Forecast (08/08/2011)

The uncertain fluctuations that Her Majesty’s currency experienced are clearly due to the enormous indecision and fear about US economy. Last week the British Pound futures opened at 162.9 on Monday and stayed at that level on Tuesday but increased to 164.1 on Wednesday, dropped to 162.3 on Thursday and closed at 163.8 on Friday.

The actual volatility is 0.42% (6.6% annualised) and the TGARCH plot is now showing a downward sloping curve which is far from its medium term equilibrium point which is set around the 0.5% threshold (7.9% annualised).

The low volatility of British Pound futures, despite the wild oscillation observed in other markets, it is a warning signal and the fluctuations rate is very likely to augment over the next trading hours causing the US dollar to appreciate against the Sterling.

Furthermore, it is important to point out that, although the US debt has been downgraded, the US dollar remains the main reserve currency for many countries and many investors still consider it as a counterbalancing asset against equity indices drops.

The HyperVolatility team is bearish British Pound futures because the volatility should increase, at least in the short term, dragging prices back down in the 161.5 area by Friday.

Should things get worst for equity indices the US dollar could appreciate even more and British Pound futures would plunge to 159 – 160 in the worst scenario.

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