LONDON: One narrative that has emerged from the fog surrounding Britain's exit from the European Union is that sterling has gone from being a long-established global reserve currency to one of the most fragile and volatile currencies in the world.
The line is a good one, made more compelling by the plunge of as much as 20 percent against the dollar following June's Brexit referendum that made the pound one of the worst-performing currencies last year, ahead only of devalued ones like the Egyptian pound and Nigerian naira.
Extending the emerging market analogy, Britain's current account deficit means sterling needs huge foreign capital inflows just to stay stable, and is being buffeted as much by unpredictable political developments as traditional economic fundamentals.
But is it accurate?
A Reuters analysis of foreign exchange market volatility and positioning over the last 30 years shows that sterling may be more vulnerable to periodic one-off shocks than its peers, but is no more volatile over time.
Sterling suffered severe bouts of volatility and sharp depreciation in 1992 (sterling's ejection from the Exchange Rate Mechanism), 2008-09 (global financial crisis) and 2016 (Brexit vote).
But aside from that, its volatility against the dollar has broadly been in line with that of the euro and yen over the past three decades.
"This doesn't look like an emerging market currency. This is the sterling we know and love," said Simon Derrick, global head of FX strategy at Bank of New York Mellon in London.
The data shows that a normal move for all three currencies over a rolling one-month period is around 3 percent. Sterling/dollar has broken out of that range 91 times since 1987, euro/dollar 105 times and dollar/yen 95 times.
By this measure, sterling is less volatile than the euro and yen over the long run.
The second graphic shows the same three currencies' 'two standard deviation' moves against the dollar, where gains or losses are twice the monthly norm.
The two-standard deviation is just over 5 percent for all three currencies. Sterling/dollar and dollar/yen have moved beyond that level 20 times since 1987, and euro/dollar 18 times.
The third and fourth graphics show one- and two-standard deviation moves in the world's most liquid emerging market currencies, the Mexican peso, Turkish lira and Brazilian real.
These currencies move beyond their normal trading parameters less than their major counterparts, but as would be expected of higher risk emerging market assets, their standard deviation ranges are wider to begin with.
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