The Pound (GBP) to US Dollar (USD) exchange rate continued to take a beating on Monday as concerns over Scottish Independence weighed heavily on the UK currency.
Optimism over the US economy meanwhile lent support to the ‘Greenback’ to keep it hovering at its best level in 14-months against a number of other currencies.
A poll released in a Sunday newspaper showed that the pro Independence Yes campaign has gained the advantage for the first time over the pro unionist No campaign.
The news sparked panic in the markets and led to a splurge of selling of the Pound. As a result, Sterling tumbled sharply against all of its most traded peers.
Financial markets are uncertain as to what currency an independent Scotland would be able to use after the major UK political parties all said that a currency union would not be allowed.
‘“The prospect of exiting the pound could trigger bank runs as savers attempt to protect their deposits. Banks based in Scotland are widely expected to move down south and thus this significant flow of capital leaving Scotland would do no good to the Scottish economy,’ Said Brenda Kelly from IG.
Concerns over how much national debt will be put onto Scotland also dented sentiment towards the Pound.
The jittery market also lowered their bets for the Bank of England to raise interest rates before the end of the year. Instead, many economists now believe that the central bank will refrain from altering interest rates, as the impact of Scotland leaving the Union is unclear.
Some economists are warning that a Yes vote could derail the UK’s economic recovery and could lead to a crisis in the nation’s banking sector as the Scottish government and Westminster thrash out the details.
‘On the currency side, it could at worse lead to a destabilizing crisis in the whole British banking system and at best leave the rest of the UK with an unstable currency union in which the Bank of England is forced to continue to provide liquidity to Scottish banks. Westminster meanwhile will have to thrash out a fiscal and monetary arrangement with a new Scottish Sovereign government holding all the cards,’ said Oliver Harvey, a foreign exchange strategist from Deutsche Bank.
Pound Sterling to US Dollar exchange rate forecast
The Pound is forecast to remain under pressure against the US Dollar until the Scottish referendum vote on September 18. Even if Tuesday’s UK Manufacturing and Industrial Production reports come in strongly the concerns over the Scottish vote are likely to continue to dominate sentiment.
Major market moving events for the US Dollar are fairly lacking this week but Thursday’s jobless claims data will be closely watched to see whether last week’s disappointing figures were just a blip or were the start of a slowdown in the US jobs sector.
UPDATE
The Pound Sterling to US Dollar exchange rate is currently trending in the region of 1.6110.
Tuesday has seen a continuation of the bullish run for the US Dollar as trader speculation on a near-future Federal Reserve benchmark rate hike heightens. Meanwhile a mix of British domestic data results has halted Sterling movement.
UK Industrial and Manufacturing production has printed positively, however Total Trade Balance failed to meet with the forecast figure, printing at -3.348 billion.
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,
,Pound Sterling, 0.6185 ,
US Dollar,,Euro,0.7726 ,
US Dollar,,Canadian Dollar,1.0910 ,
US Dollar,,Australian Dollar,1.0726 ,
Pound Sterling,,US Dollar,1.6165 ,
Euro,,US Dollar,1.2941 ,
[/table]
