The pound has weakened significantly during the Asia session on the back of the latest polls suggesting that the upcoming referendum on Scottish independence could be won by those wanting Scotland to separate from the United Kingdom. Polls have been narrowing in recent weeks, but the weekend’s Sunday Times poll was the first to give a lead to the ‘Yes’ camp. There remains a lot of uncertainty as to how such an outcome will pan out, more specifically with respect to the currency, given that Scotland wish to keep sterling, yet the major political parties in London don’t agree. Cable has fallen 1.5 big figures, settling around the 1.6160 level. More specifically, we have seen option implied volatilities spike higher once again, to levels seen more than a year ago, reflecting the increased uncertainty as to the future direction of the currency. The next two weeks are likely to see this heightened level of concern continue, so long as polls suggest the vote (on Thursday 18th September) is too close to call.
Elsewhere, the dollar wobbled after the weaker than expected employment report on Friday, but the weakness in sterling and the belief that the euro will continue to suffer after the latest ECB measures have meant that the losses were not sustained. The dollar index is sitting just below 84.00, last seen on a sustained basis 14 months ago. There are few data releases of significance today, so we are likely to see a quiet start to the week. Overall though, we are seeing greater divergent strains between different underlying currencies, which increases the prospect of further dollar strength towards the end of the year. Note that Aussie employment data is released later this week, with the currency still holding firms despite the RBA’s underlying belief of its continued over-valuation.