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British Pound Collapses To 10-Month Lows

Tyler Durden's picture




 

We warned here that the "Yes" vote for Scottish Independence was a "high risk" event, and as we noted earlier, with polls indicating its a high probability and 'English' leadership in full panic mode, it is perhaps not surprising that the British Pound opened down 160pips at 10-month lows... (a 500 pip drop in 3 days)... But, didn't the clever people on TV tell us 'it was priced in'?

 

 

Chart: Bloomberg

*  *  *

As we concluded previously,

Some Possible Implications Of a “Yes” Vote

In our view, a “yes” vote would have several key implications:

Bad for UK growth. Uncertainties over the economic prospects, policies and currency arrangements of an independent Scotland probably would hit growth in both Scotland and the rest of the UK (rUK), raising the incentive for firms to “wait and see” or to expand elsewhere. Exports to Scotland account for roughly 4% of GDP for the rUK and Scotland would immediately be the rUK’s second biggest trading partner, slightly behind the US and slightly above Germany. Moreover, many banks and businesses have sizeable cross-border exposures between Scotland and rUK, and some firms may seek to limit such exposure as a hedge against the possible breakup of sterlingisation (if that is the policy adopted).

 

Bad for mainstream UK political parties, good for the anti-EU vote. Once independence happens, Scottish MPs would no longer attend or vote at the Westminster parliament. This would disproportionately hurt both Labour and the Lib Dems: Scotland accounts for 9% of seats at the Westminster parliament (59 out of 650 seats in 2010), but accounts for 16% of Labour seats, and 19% of Lib Dem seats. Conversely, only one out of the 306 Conservative MPs elected in 2010 is from a Scottish seat. However, although the maths of a postindependence Parliament would favour the Conservatives, we believe a “yes” vote would also badly hurt the personal position of PM Cameron, by making him the PM “who lost the UK”. The key winner in UK political terms would probably be UKIP: this reflects the damage to the three main Westminster parties, the evidence that voters are prepared to reject the establishment and vote for radical change, and also the extent to which the themes in the Scottish referendum debate — a choice between membership of a larger bloc or independence — are likely to have echoes in any future EU referendum. A secondary winner might be London Mayor Boris Johnson, who seems to be positioning himself as the radical outsider as candidate to succeed Cameron as Conservative party leader.

 

Uncertainties are likely to drag on for a while. The Scottish government has said that in the event of a “yes” vote, it would aim to complete negotiations quickly and for Scotland to become independent in March 201611, ahead of the Scottish parliament elections scheduled for May 2016. In practice, the process might well take longer, especially given the interruption of the UK general election in May 2015 and possibility that the election might change the UK government. Indeed, given that Labour has now moved slightly ahead of the SNP in voting intentions for the Scottish parliament in recent YouGov polls, one can imagine scenarios under which negotiations on Scottish independence have to be completed after May 2016 under a Labour-led Scottish government (which opposed independence), a Labour-led rUK government and with a Johnson-led Conservative party in opposition that is moving towards advocating EU exit.

 

BoE on the alert: BoE Governor Carney noted in his Inflation Report press conference that the BoE would be ready to act if Scotland-related uncertainties escalate: “we also have responsibilities, as you know, for financial stability in the United Kingdom and we will continue to discharge those responsibilities until they change... Uncertainty about the currency arrangements could raise financial stability issues. We will, as you would expect us to have contingency plans for various possibilities”.

*  *  *

With a “no” vote, the UK would still face rising political uncertainties. The UK political landscape is in a state of extreme flux, with the enduring Scottish independence movement, the rise of UKIP as a political force and resultant change in UK party political dynamics, the moderate-to-high probability of a change of government in the 2015 elections and uncertainties over post-election fiscal policy, plus the non-negligible risk of a referendum on UK exit from the EU in 2017-18 or so. Even if the “no” camp prevails in September, we do not foresee a return to the pre-referendum political status quo in the UK. In our view, the outlook for UK political risks will remain elevated well beyond the referendum, and we suspect these UK political risks are underpriced in markets.

More broadly, "Referendum Risk" is one of the more powerful manifestations of what we have termed Vox Populi risk, the Crimea being a particularly powerful, if extreme, example. In particular, what happens in Scotland will be particularly closely watched in Spain, which is facing a referendum on Catalan independence. Latent independence movements elsewhere, such as Belgium, could also be influenced by the outcome in Scotland. We regard the revival of local/national concerns, from Scotland to Spain and beyond, as part of continuing anti-establishment sentiment and a backlash against globalisation. And the UK experience (with growing support for UKIP alongside faster economic growth) raises the issue that economic recovery alone may not be enough to reverse the rise in anti-elite, anti-establishment sentiment.

 

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Sun, 09/07/2014 - 17:06 | 5191556 Stackers
Stackers's picture

Remain Calm All Is Well !

https://www.youtube.com/watch?v=zDAmPIq29ro

 

Sun, 09/07/2014 - 17:07 | 5191559 Publicus
Publicus's picture

UK becoming another Ukraine? Both starts with UK!

Yes to Scottish Independence!

Sun, 09/07/2014 - 17:16 | 5191587 X.inf.capt
X.inf.capt's picture

'i care not who leads a country, only that i control its currency'...

Baron von Rothchild...1830's

Sun, 09/07/2014 - 17:19 | 5191599 I am Jobe
I am Jobe's picture

Too late for that. Brits and Amerikans are both fucked. Teah Greatest minds and stiff upper lip my azz 

Sun, 09/07/2014 - 17:07 | 5191557 Publicus
Publicus's picture

.

Sun, 09/07/2014 - 17:08 | 5191565 Wolferl
Wolferl's picture

This vote is meaningless. The elite will let the sheeple vote again and again until they get the result they want.

Sun, 09/07/2014 - 17:21 | 5191600 I am Jobe
I am Jobe's picture

Agreed. Just Like Amerikan Unbred Fuck Heads. 

Sun, 09/07/2014 - 17:08 | 5191567 Devotional
Devotional's picture

Hold on ... 1 GBP = 1,61USD ... wow o_O

So who is in bad shape again?

Sun, 09/07/2014 - 17:09 | 5191568 FreeMktFisherMN
FreeMktFisherMN's picture

Color me skeptical that the Scots have the intentions of starting some Austrian-adhered to economy. I'm glad to see secession but statism is statism, no matter under which flag. 

Sun, 09/07/2014 - 17:10 | 5191573 Devotional
Devotional's picture

and don't forget that the Scots are in love with Socialism - Big time orgasmic love.

a free Scotland will be a SOCIALIST Scotland. Free shit on the way!!!!

 

Sun, 09/07/2014 - 17:48 | 5191669 Herodotus
Herodotus's picture

Once the cheap bastards realize that they are the ones who are going to have to pay for Socialism, they will all become libertarians.

Sun, 09/07/2014 - 17:51 | 5191677 Eyeroller
Eyeroller's picture

From WHERE?

Mon, 09/08/2014 - 06:39 | 5192895 ElZorillo
ElZorillo's picture

Free shit n taxes bitchzz

Sun, 09/07/2014 - 17:18 | 5191595 I am Jobe
I am Jobe's picture

Ever since they kpet looting things have not been good for the Brits. Time for Slavery is now. Sell the men to Afriaca and Brtish women to the Sheiks for payback and more. 

Sun, 09/07/2014 - 17:22 | 5191605 craus
craus's picture

The YES vote has picked up steam.

But I am totally certain that the NO vote will prevail

Scots are too old fashioned and conservative.

Sun, 09/07/2014 - 17:25 | 5191611 Yen Cross
Yen Cross's picture

  Awesome! I got out of that stale GBP/JPY trade I've been holding. Hit my trailing stop on the way down, and closed out for (30)pips!

  I see some great trading opportunities off this move. ;-)

Sun, 09/07/2014 - 17:28 | 5191622 himaroid
himaroid's picture

wallstreet asswipes must be losing it.

They are.

To us!

Sun, 09/07/2014 - 17:33 | 5191636 Yen Cross
Yen Cross's picture

  I love it when a plan comes together...

 George Peppard aka John "Hannibal" Smith ~ The -A-Team...

Sun, 09/07/2014 - 17:35 | 5191618 himaroid
himaroid's picture

Ye Scottish lads and lassies make me kilt rise with me dollar. More airgead for me!

Sun, 09/07/2014 - 17:26 | 5191620 Fuku Ben
Fuku Ben's picture

Och aye we can !

Satan's puppets like Obomba will be sad it loses something in the reverse translation

https://www.youtube.com/watch?v=LS53I-k_T4o

Sun, 09/07/2014 - 17:28 | 5191623 jmcadg
jmcadg's picture

I'm all for Scottish independence. However, what Alex Salmond is offering is NOT independence, it's just another level of bureaucracy. Jobs for the boys. It's all bollocks. But I do find the current squirming of the establishment both hilarious and nauseating. They are desparate to suggest calamity if the Scots vote yes. Then you add RBS threatening to take their business away, back to London - bwahahahahaha. Don't you mean take your debt away you fuckin' dicks.

Bread and circuses. Fuck them all. Oh, and UKIP is no panaecea. Just another bunch of Tory toffs with the odd useful idiot. Farage is pretty good on the Euro stage, but dig a little deeper and you get this!!!

https://www.youtube.com/watch?v=-pyYoL9ngtE

A great watch - it's comedy gold.

 

Sun, 09/07/2014 - 17:37 | 5191643 himaroid
himaroid's picture

Something feels real about it this time. What they offer may not be what is taken.

Sun, 09/07/2014 - 17:29 | 5191625 theta
theta's picture

The pound has actually gone slightly up versus the euro. It's the latter's collapse recently that caused the pound to go down versus the dollar

Sun, 09/07/2014 - 17:33 | 5191631 yogibear
yogibear's picture

Round robin CB currency trashing.

Sun, 09/07/2014 - 17:47 | 5191646 Yen Cross
Yen Cross's picture

The "cable" is starting to look like one of the less liquid crosses. (almost 400 pips in less than a week of trading)

 In all honesty, cable is going to squeeze very soon. The services PMI last week was pretty darn good, and no-one is talking about it.

  Week of  8-31/ 9-5-'14      
                 GBP         BoE Consumer Credit     1.100B     0.550B     0.700B    
      GBP         M4 Money Supply (MoM)     0.3%     0.5%     0.1%      
      GBP         Mortgage Approvals     66.57K     66.57K     67.08K    
      GBP         Mortgage Lending     2.30B     2.00B     2.20B    
       GBP         Construction PMI     64.0     61.4     62.4      
       GBP         Services PMI     60.5     58.5     59.1    
Manufacturing PMI missed, but is only 25% of U.K. economy.

Mon, 09/08/2014 - 05:19 | 5192867 CRYBABY
CRYBABY's picture

I've just gone long cable @ 1.6130....a yes vote is now largely priced into the cross...and I think the "NO" campaign will really kick into gear after these w/e polls. 

Sun, 09/07/2014 - 17:47 | 5191668 limacon
limacon's picture

This Scenario worries the Oligarchs :

Scotland joins BRICS and with Russia jacks up gas prices and thus raids EU Oligarchs (who foots the bill , since they own most of Europe(and Europeans) . See :http://andreswhy.blogspot.com/2014/02/neo-vikings.html

Uses deflation to boost it's economy . See http://andreswhy.blogspot.com/2011/11/inflation-vs-deflation-ii.html

Defeats combined armies of US and UK by hiring Constellis : see

http://andreswhy.blogspot.com/2014/08/the-mercenary-patriot.html

What is left is the rubble of the EU : See http://andreswhy.blogspot.com/2014/03/gini-and-rubble-of-empire.html

Sun, 09/07/2014 - 18:02 | 5191701 gmak
gmak's picture

Do you want the blue handcuffs or the red handcuffs?

Sun, 09/07/2014 - 18:38 | 5191815 q99x2
q99x2's picture

No more aristocracies. Down with the queens.

Sun, 09/07/2014 - 18:39 | 5191817 Michigander
Michigander's picture

England just needs to bring back primae noctis. Problem solved.

Sun, 09/07/2014 - 18:41 | 5191828 himaroid
himaroid's picture

"If we can't get them out, we'll breed them out."

Doubt it would work out any better this time.

Mon, 09/08/2014 - 05:17 | 5192865 dreadnaught
dreadnaught's picture

i studied it and found it never really existed..........Prima Noctes

Sun, 09/07/2014 - 20:18 | 5192133 hairInTheSoup
hairInTheSoup's picture

BoE said in july they wanted the pound down (before raising rates)

since -900pips

 

the forex market refuses nothing to BoE, (unless it's the poll companies interviewing the scots).

Sun, 09/07/2014 - 21:42 | 5192353 rwe2late
rwe2late's picture

Debt Free

Prime Minister David Cameron has called Alex Salmond's threat to default on Scotland's share of the national debt if it votes to leave the UK "one of the most chilling" claims made throughout the referendum debate.

[perhaps Cameron was reminded of Iceland?]

http://www.telegraph.co.uk/news/uknews/scottish-independence/11073506/Da...

 

another meaning for getting away Scot-free

Sun, 09/07/2014 - 22:38 | 5192474 AdvancingTime
AdvancingTime's picture

 If Scotland wants independence then so be it, but sorting out the political and economic ties with the rest of the UK, may be difficult. Scotland has to be allowed to stand on its own two feet without the rest of the UK financially and economically supporting it. The Euro proves that more than one sovereign country cannot easily use the same currency.

Portugal, Ireland, Greece, Italy and Spain have discovered that you cannot have full independence and share a currency. Another problem is that if the UK Government is to agreeable to a separation, will Wales and Northern Ireland move towards independence? That might encourage similar movements in Catalonia, Belgium, Northern League in Italy, Basques, Cornish, and among the Poles.  More on the issues surrounding this issue in the article below.

http://brucewilds.blogspot.com/2013/06/british-pound-and-independant-sco...

Mon, 09/08/2014 - 04:47 | 5192839 Shropshire Lad
Shropshire Lad's picture

The pound has been grossly overvalued because of the vast laundering of international drug trading profits through the City of London.  The pound still has a high valuation in terms of purchasing power.

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