On the 18th September Scotland will vote on whether to remain part of the UK. The ramifications of the vote could have a significant effect on the value of the pound with some analysts predicting anywhere between a 5% to 15% devaluation if the 'YES' vote win and Scotland leaves the Union.
This has been reinforced in the past few days with implied volatility levels on GBP doubling from 4.5% to over 11%.
With the outcome likely to go down to the wire, we believe GBP is likely to remain on a knife edge right up until the result is announced on the 19th September.
In normal market conditions economic data can be predicted and acted upon. However during a once in a life time event such as the potential break up of the UK, the pound is at the mercy of Scottish voters and therefore highly unpredictable.
If the 'yes' campaign wins, even a 5% devaluation from current levels would lead to GBP/USD trading at below 1.5300, 12% below this summers peak.
If Scotland chooses to remain within the Union, then we believe the impact on Sterling will depend on how conclusive the no vote win is. 0-5% and we believe any Sterling rally may prove short-lived as this could lead to another vote in the not too distant future. 5-10% and Sterling will take comfort and we would expect a relief rally of approximately 2%. Over 10% and we could see levels back up to 1.6500.
With GBPEUR we do not anticipate such a dramatic fall in the value of the pound as the Euro is also very weak and is likely to remain so for the foreseeable future.
What ever happens managing FX expectations has never been more important.
Whatever your currency exchange needs let the experts at HiFX provide you with all the help and guidance you need to get the best rates possible when moving your money overseas. It’s easy to sign up, free and can be done 24 hours a day online.
Reader's comment:
Dear Ed,
I would like to comment on the article "Scottish referendum - What are the implications on the pound?".
The article closes with the comment "With GBPEUR we do not anticipate such a dramatic fall in the value of the pound as the Euro is also very weak and is likely to remain so for the foreseeable future." and that, I find is somewhat misleading to your readers.
Of course it all depends how one views historical data.
If we look back only a few months then the comment made has some merit, however, if we look a little further into history, either to the start of the euro or further back still then we see a continued decline in the value of GBP versus the EUR.
In 2000 the Pound would have got you 1.60odd Euros, now only 1.25odd. Granted it has been even lower, but the continuing trend is obvious.
50 years ago the value of the Pound was around 10 DEM (5 Euro equivalent), then 8 (4), then 6 (3) and has declined ever since to its current value of 1.25 Euros.
MdB
