Written by John Lounsbury
On 18 September 2014 an historic referndum was held in Scotland on possible separation from the United Kingsom. As election results became clearer during the night in the morning hours of 19 Septemebr and the preservation of the United Kingdom became more likely, the beleaguered British pound sterling (GBP) rallied, continuing a sharp advance that began over a week ago. At 5:37 am GMT, London (12:37 am EDT, New York) the GDPUSD pair traded at 1.6455.
The pound had risen earlier in the year as early opinion polls showed an apparently easy win was in the offing for the “No” vote for Scottish independence. After peaking near 1.72 in early July, GBPUSD pair faded the rest of the summer as doubt emerged about the final vote outcome.
When separatist support surged in the polls to dead even or possibly a slight advantage in the final three weeks before the 18 September referendum, the pound collapsed by more than 3% from 1.66o7 on 31 August to a low of 1.6105 on 07 September. The next day a nearly identical close was recorded (1.6106) followed by a rally of nearly 2.2% over the next ten days, which is continuing this morning.
With the US dollar strengthening right now a significant further rally is problematic because the 1.72 in July was a post Great Financial Crisis high for the pound. Getting back to that level may require a general weakening of the dollar.