GBP: Scottish independence referendum speculation resurfaces - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the major foreign exchange rates have continued to remain stable during the Asian trading session ahead of President Trump’s address to Congress.

Key Quotes

“The main mover overnight was the pound which has weakened following reports in the Times that Prime Minister May’s team is preparing for Scotland to potentially call for another independence referendum in March to coincide with the triggering of Article 50 according to unidentified senior government sources. The report also states that Prime Minister May could agree to a new Scottish independence vote, but on the condition it is held after the UK leaves the EU. The report is highly speculative at the current juncture, and we doubt that it will have a lasting negative impact on the pound. However, it has proved sufficient to lift EUR/GBP back above its 200-day moving average in the near-term which has helped to reinforce pound selling overnight.”

“Opinion polls have shown a modest increase in support for Scottish independence since the Brexit vote but it remains far from clear that holding another referendum would result in a different result. Economic and financial stability risks related to independence remain a much bigger deal for Scotland than for the rest of the UK including the key issue of whether Scotland would be able to keep the pound. It appears illogical to us that the Scottish independence party are willing to risk undermining the trading relationship with its biggest trading market which is the rest of the UK on the basis of the UK leaving the EU’s single market which is relatively less important for Scotland.”

“Overall, the reports do not materially change our outlook for the pound in the year ahead. We still continue to expect the pound strengthen in the coming months benefitting from rising political risk in Europe.”