By Josie Cox
The British pound plummeted to a near nine-month low Monday,
while Scotland-focused stocks also fell, whacked by a poll over the
weekend showing that the number of those favoring Scottish
independence had eclipsed those opposing a split for the first time
since the referendum campaign began.
Sterling dropped almost 0.9% in early trade to $1.6153, marking
its lowest level since November last year, while the euro gained
0.8% against the pound to GBP0.8015. Citigroup said in a note that
sterling could now easily slump to $1.56 in the event of a 'yes'
vote, echoing remarks from strategists last week.
In equity markets Monday, Royal Bank of Scotland Group PLC
shares fell 2.8%, making the lender one of the biggest losers on
London's FTSE 100 index, followed closely by Scottish-domiciled
names such as Standard Life PLC and SSE PLC. The broader index
edged 0.2% lower, having last week hit a 14-year intraday high.
The latest YouGov poll released Saturday showed 47% of those
surveyed were now likely to vote "yes" to independence, while 45%
would likely say "no." The rest of the 1,084 voters polled Sept.
2-5 said they were undecided or wouldn't vote.
Paul Donovan, an economist at UBS, said that even if the
pro-unionists took the lead on September 18, the latest figures
raise the risk of what he dubs a "Québécois scenario"--a narrow
rejection of independence that leaves open a risk of a further
vote.
"We believe this would have implications for banking, gilts,
direct investment into Scotland--from overseas and the rest of the
United Kingdom--and sterling," he said.
Alastair Thomas, head of rates and treasury at ECM Asset
Management said that in the case of a "yes" vote, uncertainty would
likely unnerve markets for a prolonged period, perhaps up to 18
month, "until all the details get agreed."
"One could even imagine a delay in the start of U.K. rate hikes
due to economic uncertainty, which is why sterling is being sold
this morning," he said.
Already last week, the currency came under severe pressure as
polls showed a narrowing of the two camps. Gilts and equities
underperformed moderately too, while implied volatility rose.
On Monday, the yield on the U.K.'s 10-year Gilt contract was at
2.490%, around 0.02% higher on the day. Yields rise as bond prices
fall.
Currency strategists at Barclays pointed out that derivatives
that protect users from sharp shifts in sterling are also
increasingly in demand.
"The abruptness of the shift in one survey should be viewed with
caution, but nonetheless reinforces our long-held view that
Scotland's independence referendum is a serious event risk, not a
tail risk," they wrote in a note.
Monday marks a fifth daily decline for a currency that has
fallen over 5% from a six-year high in July--and 2.1% for the
year--as investors start to worry about issues such as Scotland's
use of the pound or banking-regulation in the case of a split from
the rest of the U.K.
Scotland's nationalist party says Scotland would continue using
sterling, but all three main political parties in London and
treasury officials oppose this, saying it would expose British
taxpayers to financial risks from a country over which they have no
control.
Scotland's membership in the European Union would also come
under question, as it now belongs as part of the U.K.
Back in equities, however, there are some investors who are
recognizing a silver lining for markets.
"In general, the U.K. consumer sector was hit quite hard by
sterling strength," said Colin McLean, managing director and
founder of Edinburgh-based fund manager SVM Asset Management. "I
think generally a weaker pound could support, especially some of
the retailers, as well as other consumer sector names," he
added.
Rebecca Howard and Anjani Trivedi contributed to this
article.
Write to Josie Cox at josie.cox@wsj.com