Who’d trade GBP in this environment? Well, actually, the smarter trader would undoubtedly be sensing an opportunity. Nevertheless, as we enter the last full day of campaigning, traders are in a quandary.
Taking insurance against a ‘Yes’ vote has spiked as two-week GBPUSD implied volatility straddling the day of the vote has risen to 12%. If the ‘No’ vote wins the day, that threatens to blow a hole in your wallet if you’re not careful.
Do the polls offer much of a clue here? Possibly not, given the margin for error. A poll for daily newspaper The Scotsman put the ‘Yes’ vote at 48%, still lagging the ‘No’ vote, but clearly indicating it has momentum on its side. With the reliability of such polls in question, and the closeness of a number of polls in the last ten days or so, it has simply become too tight to call.
In such an environment, that has seen GBP slide to 10-month lows against the USD and even GBPEUR has set off on a downward trajectory in the last week. Meanwhile, hedging costs against sharp swings from a possible ‘Yes’ vote to end the union has soared significantly.
One-month implied volatility for GBP subsequently spiked to a 14-month high.
If the ‘No’ vote succeeds, GBP could start the long march back up towards the 1.6500 area and perhaps higher. Sterling’s current valuations would start to look rather under-valued underpinned by the recent indications from Bank of England governor Mark Carney that UK interest rates could rise as soon as the spring of 2015.
If GPB bulls were ever in need of a signal, that was a pretty clear one there.
However, traders preparing for this eventuality risk exposure if the ‘Yes’ vote succeeds. In this scenario, even at current levels, hedging positions against a break-up of the union may appear to be the cheaper option.
One thing is certain: GBP will react to every new poll or market-moving event that occurs in and around the 18 September vote.
Further interventions along the lines of those made by the Royal Bank of Scotland and John Lewis last week can’t be ruled out as the debate becomes ever more shrill.
We’ve also seen global investment manager giant BlackRock release a statement that it was shorting sterling by buying various derivatives and other fund managers have claimed investors are already withdrawing money from UK equity funds.
Any significant shift in favour of the ‘Yes’ vote could see GBP continue to depreciate. Any relief rally of GBP in the event of a ‘No’ vote could be short-lived as next year’s general election and then a potential referendum on European Union membership may weigh on financial market participants.
Will Scotland go?
Recent polls suggest Alex Salmond and his independence campaign have all but wiped out the lead that was enjoyed by Alistair Darling and the Better Together team for much of the campaign.
While Darling was widely seen as having won the first televised debate with the Scottish National Party’s Alex Salmond, Salmond undoubtedly turned the tables in the second round and helped to establish a momentum that has shown little signs of wavering.
The bookies favour the ‘No’ vote, but only just. Ladbrokes and William Hill, the UK’s two biggest bookmakers, are laying seven to four odds against a ‘Yes’ vote. DM???
Want to watch Richard Poplak’s audition for SA’s Got Talent?
Who doesn’t? Alas, it was removed by the host site for prolific swearing*... Now that we’ve got your attention, we thought we’d take the opportunity to talk to you about the small matter of book burning and freedom of speech.
Since its release, Pieter-Louis Myburgh’s book Gangster State, has sparked numerous fascist-like behavior from certain members of the public (and the State). There have been planned book burnings, disrupted launches and Ace Magashule has openly called him a liar. And just to say thanks, a R10m defamation suit has been lodged against the author.
Pieter-Louis Myburgh is our latest Scorpio Investigative journalist recruit and we’re not going to let him and his crucial book be silenced. When the Cape Town launch was postponed, Maverick Insider stepped in and relocated it to a secure location so that Pieter-Louis’ revelations could be heard by the public. If we’ve learnt one thing over the past ten years it is this: when anyone tries to infringe on our constitutional rights, we have to fight back. Every day, our journalists are uncovering more details and evidence of State Capture and its various reincarnations. The rot is deep and the threats, like this recent one to freedom of speech, are real. You can support the cause by becoming an Insider and help free the speech that can make a difference.
*No video of Richard Poplak auditioning for SA’s Got Talent actually exists. Unless it does and we don’t know about it please send it through.
Towns near Fukushima are now being plagued by hordes of rampaging radioactive wild boars. Where are Asterix and Obelix when you need them?