Brexit turmoil sees foreign investors steer clear of pound

The baffling intricacy of Brexit has put many foreign investors off either buying or selling sterling of late. The latest twist — UK Prime Minister Theresa May’s decision to postpone the parliamentary vote on her EU divorce deal — vindicates those who have opted to stay away.

Asset managers have struggled to generate returns throughout the year and there is little appetite from international investors to jeopardise any profits on the pound — a key factor in the market’s recent inability to push the currency out of its tight recent range.

It is not only the complicated long-term path forward that is foxing overseas investors; jerky intra-day moves are also off-putting.

Hedge funds, normally regarded as the investors most likely to take on tricky bets, are wary of picking a likely direction for the pound when the outcome appears so binary. Choose the wrong path, and those hedge fund managers know they will face awkward questions from clients keen to understand why they had taken on a trade so dominated by political uncertainty.

Even macro funds, which bet on currencies, bonds and stocks, have performed well this year and are unlikely to want to risk their gains on a perceived coin toss. Some funds have tiptoed into options, paying out on either a large fall or a large rally, depending on their view.

Derivatives markets are pricing in a high degree of uncertainty in the pound, with expectations for potential price swings concentrated on the one- and three-month time horizon. Even some who invest in the long term are cautious about buying sterling on the cheap.

The pound has also had to compete for investors’ attention amid a gloomy global growth outlook and the impact of trade tensions between the US and China.