Forex snapshot

The pound has tumbled today following the weekend’s Scottish referendum news, suffering one of its worst intraday falls in over a year.

A pound on top of a US dollar note
Source: Bloomberg

It is a cliché that markets hate uncertainty. The Scottish referendum provides that in spades, with all the attendant ‘unknown unknowns’ regarding the division of debt, currency sharing and a host of other unresolved questions.

The weekend’s YouGov poll, in which the ‘Yes’ vote took a shock lead (albeit a small one), has upset the calculations of many in the City and seen a sharp drop in GBP/USD.

Today’s 1% fall in sterling would be seen as nothing compared to the possible drop if Scotland were to leave, with some economists suggesting a fall of 3% to 5%. The fall could be worse if the independence negotiations become acrimonious, with unsightly disagreement over debt burdens and the role of the Bank of England.

A sharply oversold reading on the relative strength index means that today’s bounce from $1.61 may have some legs to it, but with two further polls out this week many will be expecting to see the pro-independence campaign make up fresh ground, putting further pressure on the pound.

Any rally from this point must fill the gap created by this morning’s drop, and then go on to close above $1.6320, to reverse the short-term acceleration of the downtrend. 

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.