The British pound continued to weaken Tuesday, with investors
displaying last-minute nerves ahead of Scotland's imminent
referendum on independence, the outcome of which analysts say is
still too close to call.
In early European trade, sterling was 0.3% lower against the
U.S. dollar, at $1.6178, not far off the year's low of $1.6052 hit
last week, and a punchy 5.3% below 2014's high of $1.71 hit in
mid-July.
But Barclays's European head of currency research, Marvin Barth,
said investors still aren't taking the possibility of an
independent Scotland seriously enough. "With less than a week
before the event, we believe markets continue to misprice
Thursday's referendum," Mr. Barth wrote in a note, adding that he
predicts sterling could still see declines of between 4.4% and 8.0%
in the case of a vote in favor of a split.
Other strategists said that beyond Scotland, sterling's declines
could be enhanced further this week if the U.S.'s Federal Open
Market Committee minutes show a hawkish shift, which would indicate
a hike in interest rates sooner than initially expected by the
market, in turn boosting the dollar.
On Friday, the dollar logged its longest weekly winning streak
in more than 17 years, rising against a broad basket of currencies
for nine straight weeks, according to the ICE U.S. Dollar
Index.
Since the start of the year, the pound has lost around 2.5% in
value against the dollar, despite enjoying a robust rally during
the first half of 2014.
Kit Juckes, a macro strategist at Société Générale, however,
predicts that it may still have much further to go.
"Bookmakers report up to three times as much money being bet on
a "No" in the Scottish referendum as on a "Yes', despite the
knife-edge opinion polls," he wrote in a note. "That raises the
risk of more downside on a "Yes" than upside on a "No" at the end
of the week," he added.
London's FTSE stock index, meanwhile, is trading 0.2% lower on
the day, extending Monday's losses, which were in part triggered by
weak Chinese industrial production data.
Since the start of the month, when fears surrounding the
implications of the referendum started spreading through the
market, the U.K.'s index of the top 100 stocks is down nearly 0.5%.
The Stoxx Europe 600, which was 0.4% lower on Tuesday, is unchanged
on the month.
Beyond the U.K., Russia retained its spot on investors' radar as
the ruble dropped more than 1% to yet another all-time low against
the dollar, of 38.77 rubles, as the U.S. decision on Friday to join
the European Union in expanding sanctions continued to weigh on the
currency.
The new measures prevent Western energy firms from providing
technology and services--other than financial services--to five
Russian energy majors' oil projects in the Arctic, deep offshore
fields and shale, the U.S. Treasury Department said Friday.
On Monday, Russia said it would create a multibillion-dollar
emergency fund for companies hurt by the sanctions--a sign that the
country is girding for a long period of economic isolation.
Moscow's Micex proved resilient in early European trade,
clinging to a 0.3% gain, but its dollar-traded counterpart, the RTS
Index, fell 0.8%.
In commodities markets, gold gained 0.1% to $1,236.50 a troy
ounce while Brent crude declined around the same as much, to $97.80
a barrel.
Write to Josie Cox at josie.cox@wsj.com
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