Pound Drops to Lowest Since November on Scots’ Referendum Poll

By Lucy Meakin  

The pound tumbled for a second week as polls showing a swing in favor of Scottish independence from the U.K. damped demand for the British currency.
Sterling slid to the lowest in almost 10 months versus the dollar as leaders from the U.K.’s three main political parties urged voters to maintain the 307-year union. A victory by the “yes” campaign would mean a 5 percent to 10 percent drop within a month, 61 percent of 31 respondents said in a Bloomberg poll conducted Sept. 5-11. Scotland is set to vote on independence on Sept. 18.
“As the polls remain so close, and one suspects they will do between now and next Thursday, then it is difficult to suggest anything other than sterling remaining vulnerable to further bouts of uncertainty,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “It’s all eyes on the polls, and rumor and innuendo until then.”
The pound tumbled 0.5 percent in the week to
$1.6244 as of 5:04 p.m. London time yesterday. It has dropped for all but one of the past 10 weeks and slid as low as $1.6052 on Sept. 10, the least since Nov. 15. Sterling weakened 0.5 percent to 79.74 pence per euro. A gauge of implied one-month volatility for the pound against the dollar climbed to 11.3 percent on Sept. 10, the highest since November 2011.
The U.K. currency plunged the most in more than a year on Sept. 8 after a poll by YouGov Plc for the Sunday Times showed the independence campaign gained a lead for the first time this year. A separate poll conducted by ICM and published by the Guardian newspaper yesterday put support for the “yes” campaign at 49 percent versus 51 percent for the “no” camp, after excluding undecided voters.

Pound Slides

Sterling fell 0.8 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies as campaigners for the two sides tussled over whether an independent Scotland could retain the pound. Even so, it has strengthened 6.9 percent over the past year, making it the best performer among the indexes.
U.K. 10-year bond yields climbed to a five-week high as Bank of England Governor Mark Carney reiterated the time to increase interest rates has moved closer.
Carney told delegates at the annual conference of the Trades Union Congress on Sept. 9 that they should prepare for borrowing costs to rise from a record-low 0.5 percent, otherwise the BOE’s aim of keeping inflation at 2 percent will be at risk.
The 10-year gilt yield rose seven basis points, or 0.07 percentage point, this week to 2.53 percent. The rate touched 2.55 percent yesterday, the highest since Aug. 6. The 2.75 percent bond due September 2024 fell 0.59, or 5.90 pounds per 1,000-pound face amount, to 101.94.
A report on Sept. 16 will show U.K. consumer-price inflation slowed to an annualized 1.5 percent in August, according to the median estimate of economists surveyed by Bloomberg, a day before the publication of minutes of the central bank’s September policy meeting.