Pound drops as May reported to brace for new Scottish referendum
[LONDON] The pound fell against all its major peers after The Times reported that UK Prime Minister Theresa May's team is preparing for Scotland to potentially call for an independence referendum.
Sterling, which has been held hostage by politics since a Scottish referendum in 2014, fell as much as 0.6 per cent after the newspaper cited unidentified government sources as saying Mrs May could agree to a new Scottish vote, but on condition it is held after the UK leaves the European Union.
It stayed lower even after Mrs May's spokesman Greg Swift said on Monday that there should be no second Scottish vote.
Talk of Scotland leaving the UK after the Brexit vote isn't new. Scotland voted 55 per cent to 45 per cent in the last referendum to stay inside the UK.
"The eventuality hasn't been largely factored in the pound's value so far," wrote Ipek Ozkardeskaya, a senior market analyst at London Capital Group Limited.
"If Scotland decides to proceed with the second referendum to quit the UK, there would certainly be another fundamental downshift in the pound's value, both against the US dollar and the euro."
The House of Lords begins on Monday a detailed examination of the bill authorising Mrs May to trigger the nation's withdrawal from the EU.
If the market does seriously think there can be another independence referendum before the UK leaves the EU, "then remembering how hard the pound fell in early September 2014 just in front of the prior referendum, the memory of that makes sterling a fairly easy sell here," said Ray Attrill, global co-head of foreign exchange at National Australia Bank Ltd in Sydney.
"I suspect there's been a bit of an overreaction here."
Leveraged and macro funds hit bids in response to the report, an Asia-based foreign-exchange trader said Mrs May's government is setting aside time for a Parliamentary battle to overturn changes she fears could be made to her draft Brexit law when it's debated in the House of Lords this week Some information comes from FX traders familiar with the transactions who asked not to be identified because they are not authorised to speak publicly.
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