King Edward the First of England aka the Hammer of the Scots was turning in his grave on Monday after a poll published by Sunday newspaper showed that the Yes to Independence campaign has taken the lead in the run up to September 18 Referendum vote.
Investors too were surprised and after the news broke panic spread in the currency market. As a result, the Pound was battered falling to multi-month lows against all of its major peers.
The surge in support for the pro-independence campaign in recent days has rattled the financial markets, wiping 3.5% off the value of the pound in the last month.
Against the Euro (EUR), the Pound (GBP) went into freefall giving up all of last week’s gains and declined below the 1.25 level. Against the US Dollar (USD), Sterling fell to 1.61 and tumbled against the Australian (AUD) and New Zealand Dollars (NZD).
The news that the Scots could leave the 300-year old United Kingdom also caused investors to speculate that the Bank of England will now become more cautious and will maintain interest rates at record low levels for a longer period.
With the vote set to be incredibly close the markets are also concerned that the issue of Scottish Independence will not go away even if the No campaign does win the vote.
‘This ensures that even if Scotland votes No next week the issue will not go away. The GBP was under pressure as markets consider there to be little credible planning for a Yes vote with a large number of unresolved questions expected to cause a halt in business investment and keep the BoE on the sidelines should Scotland vote Yes,’ said Sam Tuck, senior currency strategist at ANZ Bank.
In a desperate attempt to change the tide of the vote, back in favour of the No campaign, UK chancellor George Osborne announced that Westminster would offer more devolved powers to the Scottish Parliament.
Pound Sterling (GBP) Exchange Rate Forecast
As the vote draws closer, we can expect the Pound to come under even more sustained pressure especially if polls continue to show a lead for the Yes to Independence campaign.
Economists are warning that a win for the Scottish nationalists may have severe consequences in the short term for the Pound and spark an even bigger selloff than the one we are currently witnessing.
The Scottish vote on September 18.
UPDATE
The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2493.
The Pound Sterling to US Dollar exchange rate is currently trending in the region of 1.6087.
Trader reaction towards the YouGov poll on Scottish independence hasn’t abated on Tuesday morning despite a better-than-forecast economic data publication in the early hours. The year-on-year BRC Sales Like-For-Like was expected to hit 0.3% having registered a score of -0.3% previously. The actual data, however, showed an increase to 1.3%.
As the London-based political establishment try desperately to cling on to the union; investors seem less inclined to stick with Sterling. Former Prime Minister Gordon Brown has offered the Scottish parliament more power over their domestic affairs, but the urgency in which he has reacted to the possibility of a ‘Yes’ vote is showing how much England could stand to lose if the Scots gain independence.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6178 ,
Pound Sterling,,Euro,1.2499 ,
Pound Sterling,,Australian Dollar,1.7287 ,
Pound Sterling,,New Zealand Dollar,1.9437 ,
US Dollar,,Pound Sterling,0.6181 ,
Euro,, Pound Sterling ,0.8000 ,
Australian Dollar,, Pound Sterling ,0.5784 ,
New Zealand Dollar,,Pound Sterling,0.5144 ,
[/table]
