Pound Sterling Forecast to Crash by 10% Against the Dollar on Exchange Rate Markets in Event of Yes Vote Warn Nomura

Latest polling fomr YouGov confirms the Yes camp has edged ahead of the No camp, exposing financial markets as being wrong-footed on the matter. The current, and forecast, correction lower represents a necessary repricing of risk.

Analysts at Societe Generale have forecast that the GBP could fall by as much as 5% in the event of a Yes vote while Nomura reckon 10% could be the number.

For reference, the following sterling rates are seen at the time of writing (11/09):

• The pound to euro exchange rate is 0.04 pct higher on a day-on-day basis at 1.2556.
• The pound to dollar exchange rate is 0.06 pct higher at 1.6221.
• The pound to Australian dollar is 0.05 pct higher at 1.7717.
• The pound to Canadian dollar exchange rate is 0.31 pct higher at 1.7788.

If you are holding out for better rates DON'T HESITATE: Ask your FX provider if they have the relevant stop loss order to protect against downside losses and a buy order to take advantage of your best-case rate when reached. Furthermore, using an independent provider as opposed to your bank can deliver up to 5% more FX.

Forecasting More Volatility for the GBP as Uncertainty Grows

Societe Generale see the potential for deep declines in the sterling dollar rate should the Yes vote be delivered. In a note to clients, released as markets punish the GBP, analysts say:

"To re-iterate our position on this, we believe that a ‘yes’ poses more questions than it answers, and this will be negative for sterling, perhaps to the order of 5% overall. It would increase moves for secession across Europe, increase the momentum for the UK to leave the EU and hurt Scottish economic growth potential,' SocGen argues.

"The near-term downside risk remains substantial. The CFTC position data we have is for last Tuesday but Charts 1 and 2 show it for GBP and EUR positions on the IMM. The Euro short is closing-in on mid-2012 levels. The danger of a short-covering bounce at some point is obvious, even if there is no sign of one so far this morning. The GBP positioning by contrast, is STILL long. Maybe that isn’t the case now, a few days later, but the current move still looks more like capitulation than speculation on a ‘yes’," SocGen notes.

"There is more downside."

Also forecasting a weaker pound sterling to US dollar exchange rate is SEB Group:

"GBP/USD will probably try to fill the gap. The break of the 233d ma band (as repeatedly has been the case during the past years) has sent the pair spiraling lower and there is now to be seen whether the former triangle ceiling, now acting support, can cushion the decline.

"We are also relatively late in the current downward cycle so the weekend gap should probably be labelled a common gap and as such be filled (breakaway gaps normally occurs early in a move and don’t get filled) to 1.6332."

Nomura: Sterling Dollar Rate Could Crash by 10%

Nomura offer perhaps the bleakest forecast saying declines by up to 10% are possible:

"We see a clear potential for a much tighter race than previously thought, this is a pattern that is being captured by the various polls that will weigh on GBP in the coming weeks...That said, we view it is likely a further narrowing of the lead for the “No” vote in the polls could occur. With one of the important findings from You-Gov was that that the “don’t knows” are statistically more likely to be swayed for the pro-independence lobby in the run up to the referendum.

"However, when it comes to the final result at the ballot, research suggests that voters tend to be more inclined to vote in referenda for the status quo or “the devil they know” than polls suggest which only strengthens our conviction that the result will be a resolute No vote.  

How To Trade GBP:

"Short GBP/USD up until the referendum (as poll momentum should see GBP suffer), reduce your position the day before the vote and enter fresh longs before polling booths open in anticipation of a NO vote. Where potentially owning out the money GBP/USD put options as a hedge for the result makes sense to us as well in a worst case scenario as a YES vote could see a 5-10% swing in GBP in the days following.