The pound rose this week to a two-year (GUKG2) high versus the euro as Scotland voted to keep the U.K.’s 307-year-old union intact, dousing concern a separatist win would delay Bank of England plans to raise interest rates.
Sterling touched the highest in two weeks against the dollar yesterday after opponents of independence were declared winners with 55 percent of the vote in Thursday’s Scottish referendum, removing the risk to the currency from a splintering of the union. The pound dropped earlier this month as polls suggested the outcome was too close to call. U.K. government bonds declined, pushing two-year yields to a two-month high.
“The pound has strengthened modestly as investor concerns over the potential negative impact from Scotland leaving the U.K. eased,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The U.K.’s relatively favorable cyclical economic momentum and outlook for tighter monetary policy should now resume as the main drivers of pound direction in the near term offering support for the pound.”