Markets Show No Panic Before Poll: Scotland Reality Check

Two days before Scotland decides whether to exit the U.K., the independence referendum has done little to dent the confidence built up across Britain’s financial markets in the past five years.

While volatility picked up this month as opinion polls showed gains for Scottish nationalists, market charts show the pound is above its five-year average versus the dollar, the FTSE 100 index of shares is within 2 percent of a 14-year high, and yields on 30-year government debt are less than 0.5 percentage point above a record low.

“This is certainly something that justifies a significant move but not a complete disaster,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt.

While the U.K. faces the prospect of a breakup that may swell the country’s debt load and slow investment flows, the economy is set to outperform its Group-of-Seven counterparts this year. The most recent surveys signal that the nationalists’ surge in support has been checked, with most predicting a win for a continuing union. The number of undecided voters is large enough that it may still go either way.

The pound slumped to its weakest level in about 10 months at $1.6052 on Sept. 10 after a poll showed supporters of Scottish independence were ahead. It rebounded as subsequent surveys showed the “no” campaign regained its lead and was at $1.6187 at 12:19 p.m. London time, above its five-year average of $1.5919. Sterling was at 79.97 pence per euro, stronger than its five-year average of 84.53 pence.

Market Metrics

Three-month implied volatility on the pound against the dollar, at 7.93 percent, is also below its average of 9.09 percent since September 2009.

The FTSE 100 was at 6,775.14, after touching 6904.86 earlier this month, a level last seen in January 2000. Since Sept. 4, the FTSE 100 has fallen 1.5 percent, less than the 1.9 percent drop in the Stoxx Europe 600 Index. The yield on 30-year gilts was at 3.18 percent, compared with a five-year average of 3.69 percent and a record low of 2.76 percent set in June 2012.

Hedge funds and other large speculators boosted bets on a stronger pound last week. Wagers on sterling rising against the dollar exceeded those on a drop by 26,727 in the period ending Sept. 9, up from a more-than-seven-month low of 9,448 the previous week, according to U.S. Commodity Futures Trading Commission data.

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