The Pound's Scottish Selloff: Reactions to the IndyRef Problem for the UK Exchange Rate

The British pound (GBP) has taken another hammer blow at the start of the new week. The problem is, as was the case in the preceding week, that Scotland could be about to break away from the UK. The impacts on the financial markets remain unknown owing to this unprecedented prospect.

We hear from a selection of financial analysts on the matter.

First though, here are the latest rates (10/09) - as can be seen the currency has settled following the selloff, however sentiment remains poor:

The pound to euro exchange rate: 0.22 pct higher at 1.2478.
The pound to dollar exchange rate: 0.24 pct higher at 1.6146.
The pound to Canadian dollar rate: 0.17 pct higher at 1.7725.
The pound to NZ dollar: 0.38 pct higher at 1.9613.
The pound to Australian dollar: 0.74 pct higher at 1.7632.

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.

Also note that using an independent provider as opposed to your bank can deliver up to 5% more FX in some instances.

Reactions and Explanations to Sterling's Latest Slump:

• Jonathan Sudaria at Capital Spreads:

"By looking at the plunge in sterling on Sunday night, we expect jitters over the Scottish referendum to take its toll. I highly doubt anyone has an accurate model of what Scottish independence means for England but, following the recent YouGov poll, analysts have concluded that it’s not good. Minds have started to wander and there are now suggestions that we could have a lame duck parliament following next year’s election as we wait for all the Scottish MPs to extricate themselves from our political process in 2016."

• Lloyds Bank Research:

"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. While GBP positioning against the USD is not particularly heavy, according to the CFTC data released on Friday, there are still likely to be substantial short EUR/GBP positions and there is a danger that these are squared if the jitters continue."

• Charles Purdy at Smart Currency Business:

"I think it is fair to say that sterling is at the mercy of the markets this week and the latest news on the Scottish Independence vote so expect significant and rapid movements. Other than that the week ahead sees relatively few influential economic reports from the UK. Things kick off on Tuesday with Governor Carney of the Bank of England (BoE) speaking in Liverpool. With the recent uncertainty around sterling and interest rate rises, investors may look for some guidance here."

• Luc Luyet at Swissquote Research:

"GBP/USD continues its relentless decline, as can be seen by the move below the key support at 1.6220. Another support stands at 1.6000
(psychological threshold and 50% retracement). Hourly resistances can now be found at 1.6233 (intraday high) and 1.6340 (05/09/2014 high)."

• Sean Lee at Forextell:

"I also do not like uncertainty, just like most traders, and a Scottisk vote to leave the UK would certainly introduce a huge level of uncertainty into the value of the GBP on FX markets. We have 10 days to go before the vote and we are likely to see some large swings dependent on poll results. I’m siding with the high street bookies, who are still firmly of the opinion that the end result will see Scotland remaining in the UK and the bookies usually get it right.

"So, EUR/GBP is fundamentally bearish and overvalued in my view, so I expect this pair to fall heavily later in the year once the result of the referendum is confirmed. Until that point, I will sell any significant rallies but I’m also willing to buy short-term dips as the GBP longs in the market will be nervous. In other words, a great pair to be trading."