Risks in sight in view of the Scottish independence referendum


Currency pairs that involve the British Sterling Pound, especially the ones with the USD and the EUR, are very popular amongst forex and binary options online traders, while investors also often invest in the stocks of companies with strong Scottish interests or presence, especially of those companies which feature on the FTSE-100 index. Traders should thus be vigilant and aware of the developments as the Scottish referendum vote is fast approaching in order to be able to avoid losses and take their investment decisions accordingly.

Indicative of the vast effect on the markets is the fact that on Monday the pound sterling crashed to a 10-month low, while £2.3 billion was wiped off the value of the six FTSE-100 companies based in Scotland on the first day of trading reacting to the results of a weekend poll which put the Yes campaign ahead for the first time.  More specifically, the British currency dropped 1 percent to $1.61 on the pound and almost 1 percent to 1.25 euro on the pound, its lowest level since November 2013. The stock market was also much affected , as shares in companies with large Scottish interest suffered sharp falls. Royal Bank of Scotland was hit hardest, down more than 3 percent in early trading. Scottish & Southern Electricity fell 2.5 percent, Lloyds Banking Group dropped 2.2 percent, Standard Life was down 2 percent and Aberdeen Asset Management fell 1.5 percent. The FTSE 100 index – composed of the 100 largest companies listed on the London Stock Exchange (LSE), was also down by 18 points on Monday.

Many economists point to the increased risks of market instability and a possibility of a run on the pound if independence is won, pointing out that the pound could slide further on markets if Scotland votes for independence. Indeed, investors are increasingly becoming aware and alarmed of the many uncertainties surrounding a possible “yes” victory in the September 18 referendum, pertaining particularly on issues such as what currency Scotland would use, whether it would be a member of the European Union, and the future of the big businesses based in the country.

Against this background it is thus not surprising that Citi made selling the pound versus the dollar its trade of the week, since the British currency is anticipated to remain pressured despite today’s manufacturing data which is expected to be an upbeat number. The Bank of England Governor Mark Carney is also set to give speeches today and tomorrow highlighting the risks posed by the referendum.