Scotland Independence Referendum is Key Risk to Pound Dollar Exchange Rate Recovery in September
- Written by: Will Peters
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For reference, the British pound to dollar exchange rate (GBP/USD) is quoted at 1.6472 at the time of writing (03/09).
PS: The above quote is mid-market, your bank will affix a spread at their own discretion. However, an independent FX provider will seek to undercut your bank's offer, delivering up to 5% more FX in some instances.
Scotland’s referendum, is a key risk event heading into the autumn
The big unknown is Scotland’s referendum on independence due in mid-month.
Analysts at BNP Paribas warn on the risks:
"Our base case is that on September 18, Scotland votes against independence, particularly given the narrowing popularity of the ‘yes’ camp for independence.
"Nonetheless, there will be heightened uncertainty heading into the referendum.
"A 'yes' vote would lead to prolonged uncertainty over the agreement of currency union, institutional arrangements, and debt negotiation. In this context, GBP volatility will spike if past history is anything to go by."
US Dollar Strength Ahead
There is no shortage of analysts proclaiming a new era of USD strength.
Analysts at BNP Paribas say:
The end of Fed tapering will come in the autumn as the FOMC continues to normalise monetary policy.
"We recommend a number of USD bullish option-based trades.
"Our view is that the normalisation of US yields will add to the strength already seen in the USD following the more neutral tone to the August FOMC minutes and Chairwoman Janet Yellen’s speech at the Jackson Hole symposium."
While the dollar is widely tipped to strengthen we would be hesitant to suggest the best pair to express this view is the pound to dollar owing to the pound's continued support afforded by the UK's economic strength.
Further pro-USD predictions come from analysts at Morgan Stanley who also confirm their bullish stance:
"We believe that the USD rally has further legs but needs the help of rising long-term US bond yields to see gains against higher-yielding currencies.
"Non-synchronised growth has allowed US bond yields to remain low for now. We emphasise USD long positions against low-yielding DM currencies: EUR, JPY and CHF.
"The focus for the market remains whether US data comes in strong, therefore we will be watching the ISM and then non-farm payrolls."
