Pound Is ‘One of the Most Undervalued’ Currencies Among the G-10

  • Sterling is one of the most undervalued G10 currencies: Nordea
  • Scottish referendum would have less of an impact than Brexit

How Damaging Is a Scotland Referendum to the Pound?

The pound was hovering near key levels on the charts, with traders reporting lower-than-average volumes going into the year-end.

The currency is now approaching the 50-day moving average against the dollar, a level below which it hasn’t closed this month. Meanwhile, the euro was hovering near its 200-day moving average against sterling, a level that hasn’t been breached in a year.

The pound is “one of the most undervalued among the G-10” currencies and is set to rebound next year as political risk increases elsewhere, Nordea AG macro strategist Aurelija Augulyte wrote in a note. The currency’s 16 percent drop against the dollar since the vote to leave the European Union could act as “a pull factor for many central banks and institutional long-term investors when rebalancing their portfolios,” she said.

The Bank of England, which opted to keep policy on hold in its most recent meeting, will likely turn hawkish in 2017 as growth continues to surprise to the upside, Copenhagen-based Augulyte said.

In Scotland, First Minister Nicola Sturgeon has said the country will have another referendum on independence for the U.K. unless it can stay in the single market. The impact of another referendum on sterling assets “is probably going to be a bit less compared to the seismic shift in the U.K.’s place in the world due to Brexit,” Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management, told Bloomberg’s Anna Edwards and Manus Cranny on Monday.

* GBP/USD is trading 0.3% weaker at 1.2454; 50-day moving average at 1.2416
* EUR/GBP is up 0.1% to 0.8382; 200-day moving average at 0.8314
* Sterling positioning is extremely short, not far from historical highs, which “gives risks of sharper and larger reversals” in 2017, according to Augulyte

— With assistance by Vassilis Karamanis

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