A gauge of future price swings for the pound against the dollar jumped by the most in almost six years as a survey showed support for Scottish independence is increasing before this month’s referendum.
The pound dropped to the weakest versus the dollar since March after a poll by YouGov Plc for the Times and Sun newspapers showed a narrower lead for those favoring remaining part of the U.K. Volatility in sterling rose 22 percent, the biggest one-day jump since October 2008. The U.K. currency stayed lower even after a report showed construction growth unexpectedly accelerated in August. Gilts declined for a second day.
“There is no doubt that the jitters ahead of the referendum are weighing on the pound, and the latest poll didn’t help,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There is a general perception in the market that Scotland breaking away as an independent country will lead to a higher debt burden to the U.K. and that is negative for the pound.”
The pound fell 0.6 percent to $1.6504 at 4:48 p.m. London time after sliding to $1.6491, the lowest level since March. It weakened 0.6 percent to 79.54 pence per euro. Its declines were the first in five days against both peers.
Implied one-month volatility in sterling against the dollar rose 22 percent to 6.23 percent, according to data compiled by Bloomberg.
Sterling dropped 0.8 percent in the past month, paring its gain in the past year to 6.8 percent, based on Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies.
Little more than two weeks before the Sept. 18 ballot on independence from the U.K., the “No” vote dropped to 48 percent from 51 percent in the last survey two weeks ago, the YouGov poll showed. That compared with 42 percent who said they’ll vote “Yes,” up two percentage points. Ten percent said they’ve yet to make up their mind.
Stripping out undecided voters, the poll found 53 percent of respondents would vote against independence and 47 percent in favor. The six-point deficit narrowed from 14 points in the last YouGov poll conducted on Aug. 12-15.
Morgan Stanley estimated that the pound could fall by as much as 10 percent on a trade-weighted basis if Scotland votes for independence.
“A yes vote would create both economic and political uncertainty,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “This could deter foreign investor inflows, and even longer-term foreign direct investment, which have been a major supportive factor for the pound.”
Gilts declined alongside Treasuries and German bunds as stocks and the dollar advanced before data today that analysts forecast will show expansion in U.S. manufacturing.
“Yields are up across the board in gilts, bunds, and Treasuries and seem to be part of much better risk appetite to start the post-summer trading, as equities and the U.S. dollar have been bid, as well,” said Richard Kelly, a senior strategist at Toronto-Dominion Bank in London. “It feels like the market is trying to shake off the funk we had over the last month as it worried about poor data.”
The yield on 10-year gilts climbed six basis points, or 0.06 percentage point, to 2.44 percent, the biggest increase in two weeks. The 2.75 percent bond due September 2024 fell 0.515, or 5.15 pounds per 1,000-pound face amount, to 102.735.
The rate on five-year notes increased four basis points to 1.76 percent.
Yields also rose as the Debt Management Office sold 4 billion pounds of gilts maturing in July 2020. The bond drew bids 1.59 times the security on offer and was sold at the yield of 1.939%
Gilts returned 4.1 percent in the past three months, compared with a 1 percent gain in Treasuries, according to Bloomberg World Bond Indexes. German bonds rose 3.2 percent.
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