Pound Traders Are Betting on May to Survive

Wednesday,   12-Dec-2018   05:01 PM (IST)

The pound rallied as the market judged U.K. Prime Minister Theresa May may survive a threat to her leadership launched Wednesday.Sterling recovered from a 20-month low and gilts fell after May said she would contest a vote of no confidence and many of her Cabinet ministers came out in support of her. Options betting on overnight pound-dollar volatility soared to the highest since June last year, ahead of the vote Wednesday evening.Sterling climbed 0.4 percent to $1.2539 in London, after touching $1.2478, the lowest since April 2017. The currency gained 0.3 percent against the euro to 90.34 pence per euro. Government bonds fell, with 10-year yields rising two basis points to 1.21 percent, while the benchmark FTSE 100 Index rose 0.8 percent.Sterling could drop 3 percent on a trade-weighted basis within days if May loses the vote of confidence, and could climb 1 percent to 2 percent if she survives, according to Nomura International.May won support from senior allies in her government, including potential leadership rivals such as Foreign Secretary Jeremy Hunt and Pensions Secretary Amber Rudd. If a majority of Tory lawmakers vote that they have confidence in May, she cannot face another such vote for a year.