The pound may struggle to strengthen further against the dollar as uncertainty lingers around political proposals on devolution in the U.K., Nomura International Plc and Citigroup Inc. analysts said.
Sterling has appreciated 0.5 percent since Scotland rejected independence from the U.K. last week. In the days following the referendum, proposals for constitutional change in England have been raised. Bank of America Merrill Lynch technical analysts said it is time to sell the U.K. currency versus the dollar. While the Bank of England may raise interest rates in February, politics will be a main driver for the pound and U.K. government bonds, according to BlackRock Inc.
“The Scottish referendum has now passed and despite the ‘no’ vote it raises questions around similar votes in the future and devolution,” said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura in London. “Despite the fall in foreign-exchange volatility after the referendum, we have seen uncertainty regarding the pound with added interest on the general election in 2015. In the short-term, it looks like sterling will step away from the limelight.”