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GBP dancing to the Scot's whistle

Authored by Kira Iukhtenko

FXBAZOOKA.com - The financial markets didn’t pay too much attention to the forthcoming Scottish independence referendum on September 18 just some days ago. However, the closer the referendum is, the more nervous investors become.

The latest YouGov poll released on Tuesday showed a surge in support for Scottish independence from Great Britain. According to the poll, 42% of Scots said they intend to vote for independence, while 48% said they will vote to keep Scotland part of Britain. The remaining 10% of the voters haven’t decided yet. The poll was conducted of more than 1000 Scots from Aug. 28 to Sept. 1.

The questions about the sharing (or non-sharing) of the debt burden and currency still remain open. That’s why investors are getting worried that a “Yes” vote could bring political and economic instability to the United Kingdom. As a result, internal business confidence would plummet, braking the investment activity. This will clearly hurt the UK economic recovery. The foreign investment inflows into UK could diminish, what would be a clear negative factor for GBP.

The poll outcome made the British currency hit a fresh 5-month low versus the US dollar. In our view, the cable will fall below the current $1.6460 support and hit our next target of $1.6300 ahead of the referendum. However, in a longer term the currency is expected to hold about $1.6000 (50% Fibo from the 2013/14 rally) – in any case, the BOE is still expected to be the first central bank to raise interest rates.

  Source: WSJ

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