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Cable under Pressure as Scottish Independence Hangs in the Balance

H.S. Borji
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Cable under Pressure as Scottish Independence Hangs in the Balance

The British pound was once again on the defensive Thursday, falling to fresh 2014 lows against the US dollar as the possibility of Scottish independence weighed on the currency.

The pound-to-dollar exchange rate fell to an intraday low of 1.6398. The pair would subsequently consolidate at 1.6411, declining 0.3 percent.

Political uncertainty, among a slew of other factors, is weighing on the British pound. The latest YouGov poll suggests more Scots are favouring independence. Although the No vote is still in the lead, the gap separating the independence camp from the unity camp has narrowed from 14 points to 8 points.

The latest poll suggests 53 percent of Scots are opposed to independence versus 47 percent who are in favour. This uncertainty has placed added pressure on the pound, which is facing a broad sell-off against its US counterpart. The GBPUSD is trading at its lowest level since January 7, having tumbled more than 1 percent over the past five days.

Year-to-date, the pound-to-dollar exchange rate is down 1 percent.

The spike in Yes voters has raised uncertainty in the global financial markets. According to UK Chief Secretary to the Treasury Danny Alexander, a Yes vote would lead to an economic “earthquake” for the UK.

In an interview with British newspaper The Independent, Alexander said, “I think this is a taster of the economic damage that will be done, particularly to Scotland, if we voted for independence. These are the tremors, but we can avoid the earthquake by voting No.”

The Scottish independence referendum will be held on September 18. More than 4 million people are eligible to vote.

In other news, the Bank of England maintained its target for the overnight rate at 0.5 percent and the size of its asset purchase facility at £375 billion, as expected. The minutes of the meetings will be published on September 17.

Last month’s meetings resulted in the first split vote on interest rates in more than three years, as Monetary Policy Committee members Martin Weale and Ian McCafferty voted to increase the Bank Rate by 25 basis points. The split vote ended the longest stretch of unanimity in the MPC’s 14-year history.

The UK had no economic data to reveal on Thursday. On Friday the Bank of England will publish a report on consumer inflation expectations, which gauges consumers’ expected prices of goods and services in the next 12 months.

Halifax Bank will also release the UK’s longest-running monthly housing price index. UK house prices are forecast to have increased 9.9 percent annually in the three months through August.

In other trading, the pound enjoyed strong gains against the euro, which is under severe pressure following the European Central Bank’s decision to slash interest rates from 0.15 percent to 0.05 percent and begin buying asset-backed securities to the tune of up to €500 billion.

The euro-to-pound exchange rate tumbled 0.97 percent to 0.7911, its lowest level since late-July.

The pound didn’t fare as well against the Japanese yen. The pound-to-yen exchange rate tumbled 0.15 percent to 172.23.

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