Looming Brexit vote prompts Citi to advise against trading the pound today

Expected defeat for May in Brexit vote to boost volatility

Citigroup Inc.’s private-banking arm is advising its high-net-worth clients to stop trading the pound, at least for today. The cause: the looming Brexit vote that is likely to see sterling’s volatility skyrocket and could seal the fate of U.K. Prime Minister Theresa May.

“Over the next 24 hours what all we’re going to find out is the degree to which May loses, how much she loses by,” David Bailin, global head of investments at Citi Private Bank, said at a briefing Tuesday morning in Singapore. “That is not something that one actually trades on.”

Investors are bracing for rising volatility in the world’s fourth-most-liquid currency as May faces what’s expected to be the biggest Parliamentary defeat for a British government in 95 years. At least 70 members of May’s Conservative Party, as well as sometime allies in the Democratic Unionist Party, are publicly pledged to join with the opposition in voting against her Brexit agreement Tuesday.

Despite Brexit uncertainties, the pound has gained more than 1 per cent against the dollar this month after sliding 5.6 per cent last year. Sterling may drop 10 per cent or more on a worse-than-expected outcome on Brexit -- or could rise by a similar amount on a surprise breakthrough, according to Citi.

Regardless of the outcome, it’s simply too difficult to predict the pound’s direction in the near term, said Steven Wieting, chief investment strategist at the bank.

“If we had the members of parliament and Theresa May and the Europeans all here, they wouldn’t know how it’s going to work out, I don’t think we can,” he said. “Be relatively cautious about taking risk on that particular exchange rate.”

Here are some of Citi’s other investment views given at the briefing:

• Likes short-dated U.S. fixed income investments including 1-year Treasury notes and investment-grade credit
• Dollar will remain rangebound in 2019, while 10-year Treasury yields will remain below last year’s peak of 3.26 per cent
• U.S. Federal Reserve may hike two times this year if a trade truce between the U.S. and China is secured
• Expects 10 per cent total return in dollar terms for global equities, up to 1 per cent for global fixed income