Sterling ticked up against the dollar on Wednesday as a poll showed Scotland’s main pro-independence party was unlikely to win an outright majority in Thursday’s election, undermining its hopes for a referendum on separating from Britain.
The Scottish National Party (SNP) wants a majority in the devolved parliament to demand another referendum, although British Prime Minister Boris Johnson reiterated that he will not grant one.
“I think that most people in Scotland, most people around the whole of the UK, feel that …, as we’re coming forwards out of a pandemic together, this is not the time to have a reckless, and I think irresponsible, second referendum,” Johnson told broadcasters during a trip to the English midlands.
Because of the resolute opposition of the UK government to another referendum, the impact of the election’s results on the British currency are expected to be fairly limited.
“It is far from clear how we get to a second referendum, even under a landslide SNP victory and in the event of a referendum, the majority in favour of independence has largely disappeared with opinion now split 50/50,” wrote Adam Cole, chief currency strategist at RBC Capital Markets, in a morning note.
While an independent Scotland currently appears to be a risk fairly far away on the horizon for investors, Britain’s monetary policy and its exit strategy from the massive stimulus launched to weather the coronavirus pandemic represent a more immediate concern.
Policymakers at the Bank of England meet on Thursday when it will publish its May Monetary Policy Report.
Analysts however believe it is probably too early in the economic recovery cycle for the BoE to announce a reduction of its bond-buying scheme, let alone raise interest rates.
Sterling ticked up during the session against both the euro and the dollar. At 1510 GMT it was up 0.17% at $1.3909 and rose 0.25% against the euro at 0.8629 pence.
“The market is assuming that we will come out the other side of tomorrow in terms of elections and the BoE with effectively no obvious change”, said Jeremy Stretch, head of G10 FX strategy at CIBC.
“Our base case is that the BoE, while upgrading the growth number for this year (..) will not be in a position yet to justify tapering”, he added, and he expected rather the central bank to be in such a position at its meeting in June.