Pound Dollar: GBP/USD Exchange Rate Down 3% This September - Forecasting More Volatility

September has been unkind to sterling, it is down 2.9% vs the USD on the month and forecasts point to the potential for further weakness.

Volatility in GBP option contracts has risen to its highest level since 2011 and is likely to remain elevated until the vote of September 18th.

"The sterling dollar rate remains vulnerable to further selloffs especially if the Yes vote pick up more momentum over the next few days," notes analyst Boris Schlossberg with BK Asset Management.

However, if the political risk evaporates by a shift back to the No vote in the polls be aware sterling could see a very sharp short-covering relief rally.

At the time of writing the British pound to US dollar exchange rate (GBP/USD) is 0.02 pct higher on a day-to-day basis having reached 1.6214.

Since the beginning of the month, which was only last week, sterling lost more than 3% of its value or 500 pips against the U.S. dollar. It is now trading at its lowest level since November.

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Forecasting Further Weakness for the Pound Dollar

The outlook remains challenging for the UK unit as noted by Ipek Ozkardeskaya at Swissquote Research:

"GBP-futures contracts remain long according to CFTC report of Sep 2nd, the interest is however seen fading walking into Scots vote. We see room for further weakness. The critical support is seen at 1.6000 (psychological level & Fib 50% on July 2013/July 2014 advance)."

Analyst Kathy Lien at BK Asset Management is also keeping an eye on the big figure of 1.60:

"With less than 10 days to go before the September 18th referendum, the growing number of Yes votes will keep sterling under pressure.  Chances are 1.60 will be broken in the GBP/USD in the days leading up to the referendum but come Tuesday or Wednesday of next week, we could see profit taking and short covering."

If you are looking for a positive forecast for GBP/USD, don't turn to SEB Group:

"Medium-term targets looks at 1.60. The decline is just accelerating, soon deviating from a 1/2 year average by 4% - which usually is a stretch, but so far nothing in price action indicates an imminent U-turn, so a 1.6005 re-test seems highly likely under these circumstances. Further down, it's already time to highlight 1.5854/25."

Referendum Fever Spikes in Catalan

The implications of the Scottish referendum are now being felt in mainland Europe.

In world economic news this morning, referendum fever is spreading throughout Europe with new independence claims out of the Catalan region of Spain.

This has caused Spanish bond yields to spike 8.1%, representing the single largest increase since the formation of the European Union.
"With growing sentiments towards Scottish independence in parts of the UK causing the volatility index on the Pound to soar to a 3 year high, it will be interesting to see how this affects the Pound as well as the Euro, since a strong anti-establishment sentiment could put the political stability of the entire European Union at risk," says a note from Olypmia Trust Company in .

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