First it was European Central Bank President Mario Draghi’s stimulus measures. Now it’s an opinion poll showing the Scots want out of the United Kingdom. Foreign-exchange markets have plenty to dine on, writes FTAdviser sister title FastFT.
Sterling will be hanging on opinion polls between now and September 18, when Scotland will vote on whether to end the 307-year old union with England.
As foreign-exchange analysts at Royal Bank of Canada note: “there is no preset schedule for future opinion polls, though the frequency is likely to rise as we get closer to next Thursday’s vote.”
That should mean plenty of volatility and opportunities to make money in the currency market, as polls edge this way and that over the next ten days.
If the No camp prevail on the 18th, expect a sharp rally in sterling.
And, remember, the UK economy is currently the fastest-growing among the G7 and the Bank of England has signalled a rise in interest rates is coming.
It’s true, a close vote will leave the possibility of a future break-up on the table and inflict a longer-term bruise on the pound, but the relief at a no vote is likely to be far greater.
But if the vote is for independence, predicting the reaction of the pound - particularly over the medium-term - is harder. As is explained here, there isn’t a simple currency option for an independent Scotland.
As currency strategists at Deutsche Bank point out: “While it is obvious that each breakup of a currency union is characterised by its own unique set of circumstances, a disintegration of the sterling area would truly have no historical precedents.
“Never in history has there been an example of a breakup in a unitary state with such a modern, integrated and complex financial system.”
Until the vote, there’s 10 days of the sterling being whipped around by opinion polls. It’s a rare instance of political developments really intruding on the value of one of the world’s major currencies.
Short-term currency traders will enjoy it. It’s a lot less fun for any businesses or consumers with significant ties to Scotland.
Here is the FT’s quick guide to the Scottish vote, why it’s happening and what’s at stake.
