* Pound down 0.8% vs dollar, 0.6% vs euro
* UK bank shares also tumble as no-deal risks rise
* Some analysts say sterling looks complacent
(Adds quotes, details, chart)
LONDON, Dec 11 (Reuters) - Sterling skidded lower on Friday
and implied volatility surged as markets increasingly priced the
risk of Britain crashing out of the European Union at the end of
the month with no trading arrangements in place.
Prime Minister Boris Johnson said on Thursday he was trying
to secure a trade deal but there was "a strong possibility"
Britain and the EU would fail to agree.
The pound fell as much as 0.8% against the dollar to a low
of $1.3184 before recovering somewhat. It lost 0.6% to
the euro at 91.92 pence -- a 2-1/2 month low.
Jitters were clear on derivatives markets too where implied
volatility, an options market gauge of expected price swings,
rose further. One-week and overnight volatility rose above 20%
to the highest levels in more than eight months.
UK bank shares also tumbled as no-deal fears spread through
financial markets, with Barclays and Natwest down more than 4%
and Lloyds more than 3%.
Thu Lan Nguyen, an analyst at Commerzbank, said the market
may "price in a no-deal in the next few days", averting a
serious crash in the exchange rate when the deadline for the
trade talks expires.
"But it is also possible that the market will hold on to the
hope of a last-second agreement and then be surprised by a
no-deal, which would lead to major market turbulence," she said.
While banks and bookmakers have slashed the chances of
Britain reaching a deal, many investors believe a last-minute
deal will be reached and the moves downwards in sterling have
not been as sizeable as earlier Brexit deadlines approached.
Some analysts say the market looks complacent.
Elsa Lignos, Global Head of FX Strategy, at RBC Capital
Markets, says that while the odds of a trade deal being reached
in 2020 have nearly halved since early December, a basket of
sterling versus the dollar and euro is down only around 1%.
She said Brexit fatigue, expectations that the political
drama is all part of a "set-up for a 'Christmas miracle'" and
the view among some that a no-deal Brexit would not be terrible
all explained the relative calm in the pound.
"The GBP vol curve is reflecting the uncertainty,
having comfortably inverted, but spot GBP feels complacent.
Perhaps we are wrong, and makeshift agreements will tide us
over," she said.
(Reporting by Tommy Wilkes and Sujata Rao, Editing by Timothy
Heritage)
Barclays (BARC)
