LONDON: One-month euro/sterling risk reversals, a gauge of demand for options on a currency rising or falling, have flipped to show a bias for sterling weakness against the common currency on growing concerns that Scotland may leave the United Kingdom.
One-month risk reversals, taking the vote on Scottish independence this month into account, were trading at 0.2 vols in favour of euro calls, or bets the single currency will rise.
"Euro/sterling riskies (risk reversals) are flipping for the topside. This is mainly due to the continued weakness in sterling," said a head options trader at an European Bank.
Until Wednesday, the options market was showing greater bias for euro weakness given expectations that the European Central Bank is likely to resort to more monetary stimulus to ward off the risk of deflation.
In contrast, investors were pricing in the risk of a rate hike from the Bank of England early next year.
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