The UK will hold its much awaited make or break referendum on EU membership on 23 June. In order that PM Cameron gets his hopes that the UK stays on board, he will have to sell the deal negotiated at last week's Brussels summit.
But the opinion polls show that neither side has a clear lead, and volatility will be a significant feature of the political landscape, as well as in the markets, over the next four months.
London Mayor Boris Johnson, one of the U.K.'s most popular politicians and prominent Conservatives, mentions that he would drive for Britain to depart the EU in referendum, putting himself in direct opposition to his party leader, Prime Minister David Cameron.
The prospect of an unprecedented exit from the EU, the so-called Brexit continues to weigh on U.K. assets.
As a result, sterling has lost against almost all major currency crosses,
GBPJPY has dropped from last week's close at 162.079 to current levels at 161.256 (at 06:00 GMT), earlier it has shown gap down opening at 160.479, while the sterling fell the most in more than a month against the dollar, GBPUSD slid from 1.4399 to 1.4288 (at 06:01), GBPAUD has been no exception to collapse, slumped from 2.0125 to the current 1.9919 levels.
We could foresee stern stress on GBPJPY and GBPUSD in the days come, OTC hedging sentiments also signify downside risks with higher implied vols. Below are the suitable hedging recommendations to prevent from such jeopardy in these pairs.
We have already advised bearish trend in our previous articles as well on 2ndOctober and again on 7th, We had also stated to maintain the same strategy for hedgers by using these small bounces from then to help our ITM shorts, this would have certainly ensured returns in the form of premiums.
Hereafter, you can continue to view more pressure on sterling, as a result long put instruments in our previous recommendation to generate positive cash flows here onwards.
We ponder upon arresting potential downside risks of GBPJPY by hedging through Put Ratio back Spread that was suggested earlier as well, for now it is reckoned that the underlying currency GBPJPY continue to drag downside.