The pound jumped to its highest level in two years against the euro after the Scots voted to stay in the U.K., dampening fears a breakaway would have forced the Bank of England to delay raising interest rates.
The U.K. currency jumped 1.3 percent through Friday to trade at 78.69 pence per euro as of 5 p.m. in London after earlier surging to 78.10 pence, its highest level since July 2012. This was the strongest weekly advance since the week through June 13. The sterling advanced 0.3 percent to $1.6310 after appreciating to $1.6525 on Thursday, its strongest level since Sept. 2.
In Scotland, anti-independence voters won the referendum vote with 55 percent, boosting the pound, which had recently declined in the run-up to the vote. U.K. government bonds fell, pushing the yield on the two-year gilts to their highest level in two months.
“The pound has strengthened modestly as investor concerns over the potential negative impact from Scotland leaving the U.K. eased,” Lee Hardman, a London-based currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., told Bloomberg News. “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.”
The three major U.K. political parties had advocated that Scotland stop using the pound in case the “Yes” vote sailed through, hurting the currency. Prime Minister David Cameron reiterated that he will give Scotland newer policy-making powers following the “No” vote.
Now that the vote is concluded, the Bank of England Monetary Policy Committee is set to focus on when to increase the record-low borrowing costs, something the market will keenly follow. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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