Pound Hits 4 Week Low Against the Euro as Currency Markets Panic Over UK Breakup

The latest YouGov poll points to the likelihood of a UK breakup on the 18th of September as the Yes campaign takes the lead for the first time with momentum squarely residing with the seperatists.

Simply put foreign exchange rate markets are currently not priced for this eventuality and Tuesday morning has seen a fresh slump.

Pound rate today - latest conversions show the selling pressure has eased off but volatility remains high:

• The pound to euro exchange rate converts at 1.2480, 0.24 pct higher than seen at Tuesday's close..
• The pound to US dollar exchange rate converts at 1.6131, 0.15 pct higher.

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 can deliver up to 5% more FX than your bank would.

Ignore the Economic Data

We doubt the economic data on tap this week can significantly change current market sentiment towards GBP given uncertainty surrounding the upcoming Scottish referendum.

Governor Carney’s scheduled speech in Liverpool could attract some interest.

However, GBP will likely remain sensitive to headlines and any new opinion polls on the Scottish referendum; we see risks that GBP may continue to struggle as the referendum approaches.

"GBP/USD found support near 1.6280 on Friday, but has fallen sharply in Asian trading on the referendum news, and there is little prospect of recovery today or in the next few days with the uncertainty now likely to loom over the pound for the next 10 days," say Lloyds Bank in a currency market briefing.

The base case on financial markets is that Scotland will remain part of the United Kingdom; this base case is reflected in the current elevated levels of GBP.

However, the success of the Yes campaign, as shown in a startling new poll, means markets may have to readjust.

Morgan Stanley tell us:

"We believe GBP will continue to be sold in advance of the upcoming Scottish referendum.

"As the 'Yes' and 'No' polls show a closer election, sterling should reflect a heightened risk premium.

"Indeed, a 'Yes' vote could increase UK debt levels, push back the timing for the expectation of the first BoE hike, and foreshadow uncertainty for the May 2015 general elections. We are cautious on GBPUSD in the run-up to the September 18 vote."

Giving their position on the British pound and the current political risks are CIBC World Markets:

"The Scottish vote for independence is getting closer, and so are the opinion polls, with recent results showing the “No” votes hold only a 6%-pt lead. That’s not because people are switching camps.

"Instead, it appears that previously undecided voters are generally making their minds up in favour of voting for an independent Scotland.

"With 10% still saying they are undecided, the polls could get even closer if that trend continues.

"But if the “No’s” still win the race come September 18th as we suspect, sterling could then see something of a relief rally."