Pound Weakens Most in a Year as Scotland Vote Adds Uncertainty

The pound had its biggest weekly drop versus the dollar since July 2013 as signs that Scotland’s independence vote will be more closely contested than previously indicated damped demand for the U.K. currency.

Sterling weakened to the lowest level versus its U.S. peer since February yesterday after a YouGov Plc poll published in the Times and Sun newspapers on Sept. 2 showed the pro-U.K. camp’s lead narrowed to six percentage points once undecided voters are stripped out. Goldman Sachs Group Inc. said a win for Scottish nationalists would spark a selloff in the pound. U.K. government bonds declined as the Bank of England left monetary policy unchanged.

“The market is hedging against the risk of a Scotland exit,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Many people are suggesting a four- to five percent drop in the pound on a ‘yes’ vote. Currency markets are not fans of uncertainty.”

The pound dropped 1.7 percent this week to $1.6313 as of 5 p.m. London time yesterday, when it touched $1.6283, the lowest level since Feb. 6. That’s the biggest decline since the period ended July 5, 2013. Sterling depreciated 0.4 percent in the week to 79.44 pence per euro.

Scotland is entering the final days of campaigning before the referendum on Sept. 18. After largely ignoring the vote as surveys signaled that the pro-U.K. camp was in the lead, currency volatility jumped this week after the YouGov poll. The question of whether a go-it-alone Scotland will be able to keep the pound in partnership with the remaining parts of the U.K. has dominated the independence debate, with all the major political parties in London saying they would oppose it.

Worst Performer

Sterling fell 2.1 percent in the past month, the worst performer among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 1.8 percent, while the dollar rose 1.7 percent.

The BOE’s Monetary Policy Committee also kept its quantitative-easing program on hold. As a result, the central bank said it would start reinvesting 14.4 billion pounds of maturing gilts next week, with purchases made evenly across the three maturity bands as part of its asset-purchase plan. A 5 percent coupon gilt with a face value of about 41 billion pounds is due to be repaid on Sept. 7.

The 10-year gilt yield climbed 10 basis points, or 0.1 percentage point in the week to 2.46 percent. The 2.75 percent bond due in September 2024 fell 0.855, or 8.55 pounds per 1,000-pound face amount, to 102.53.

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