Analysts say SNP’s failure to achieve overall majority in Scottish elections also a factor in highest level against dollar since February
The fading prospect of an immediate Scottish independence referendum and hopes for a strong UK economic recovery sent the pound higher against the US dollar and the euro on the financial markets.
Sterling gained more than 1.5 cents to trade above $1.41 against the US currency for the first time since late February amid relief in the City that the SNP had fallen just short of securing an overall majority in last week’s election to the Scottish parliament.
With the Bank of England’s upbeat forecasts for growth and employment also influencing sentiment, the pound was up one cent against the euro to trade just above €1.161.
Sophie Griffiths, a market analyst at Oanda, said: “The Scottish National party won the regional elections north of the border but failed to secure an absolute majority. While the SNP will continue pushing for another independence referendum, the lack of an absolute majority means the pound is breathing a sigh of relief.”
Ned Rumpeltin, head of European currency strategy at TD Securities, said: “The market has basically judged that [Nicola Sturgeon] is certainly not walking away with a very, very strong mandate for an imminent referendum.”
Any second referendum on Scottish independence requires the approval of the UK government. The prime minister, Boris Johnson, has ruled this out, saying the country needs to focus on more pressing concerns such as the recovery from the pandemic.
The strength of the pound dragged the FTSE 100 index lower and meant the London market was not boosted by an early rise in the Dow Jones industrial average. The FTSE was down almost 20 points in late trading.
A rising pound makes imports cheaper and exports dearer, but also has an impact on the FTSE 100, which has a large number of multinational companies whose earnings are in US dollars. When the pound goes up, these earnings are worth less in sterling terms.
Griffiths said the reopening of the economy in response to falling Covid-19 infection rates was also boosting the pound. Growth figures to be published on Wednesday are likely to show the economy contracted by about 1.5% in the first three months of 2021, a much smaller fall than feared when tough lockdown rules were put in force at the start of the year.
The pound’s rise against the dollar was also due to the weakness of the US currency following last week’s disappointing jobs report, analysts said
– The Guardian