| LONDON, July 21
LONDON, July 21 Currency investors began on
Monday to show a glimmer of concern over the risks a surprise
from Scotland's September vote on independence might pose to
sterling, having appeared complacent over the issue so far.
Scottish independence has been at best a slight risk for
most money managers, with opinion polls still showing more than
50 percent of Scots want to remain part of the UK - far more
than the third who want independence.
In fact, the pound has gained 3.5 percent against the dollar
in the past six months to a shade below $1.72, its
highest in nearly six years, as investors focus on the prospect
of higher UK interest rates given a robust economic recovery.
But that appears to be changing. Some investors started to
buy options on Monday that allow them to hedge against the
possibility of a Scottish vote for independence. This trend is
likely to pick up in coming weeks, analysts said.
Two-month implied volatility, which captures the
Sept. 18 vote and the results and shows how sharp swings in a
currency is likely to be, rose to around 5.2 percent from below
5 percent on Friday and 4.6 percent just a week ago.
"There is hedging against a surprise vote in the Scottish
referendum and the two-month implied vols are suggesting that,"
said Peter Kinsella, currency strategist at Commerzbank.
"Hedging against an outside chance of a split is pretty cheap."
Sterling two-month risk reversals, which
gauge demand for options on a currency rising or falling, also
showed a greater bias for sterling weakness than did their
Uncertainties include which currency an independent Scotland
would use, membership of the European Union, sharing of North
Sea oil revenues and whether the Scottish fund industry would
move south, they said.
A number of banks have published reports in the past few
weeks which highlight a prolonged period of sterling weakness if
the Scots voted for independence.
BNP Paribas analysts said that whether or not Scotland voted
for independence, the referendum was likely to deliver a shock
"Even a 'no' vote will herald a new era, one that could
spell uncertainty for sterling," they said. "A 'no' vote on
September 18 will not be a continuation of the status quo in our
view, given the push for devolution by the Scottish National
The SNP is leading the campaign for independence.
Morgan Stanley analysts said that a "yes" vote could cause
sterling to slip by up to 10 percent on a trade-weighted basis
, retracing its gains over the past year.
"We have a morning trading meeting every day and for the
first time today one of the spot traders said: 'What do you
think about the Scottish referendum?'" said Adam Myers, a
currency strategist at Credit Agricole.
He said the market consensus appeared to be that the
economic ramifications of a "yes" or "no" vote were quite evenly
BOE MINUTES EYED
Traders will watch on Wednesday the minutes from the latest
Bank of England policy meeting for any signs of when a first
interest rate hike in seven years might happen. The market is
pricing in a slight chance that it will come in November
"If those minutes do disappoint and it looks like MPC board
members are willing to stay on hold, then we could test $1.70 by
the end of this week," he said.
Sterling was down 0.2 percent at $1.7060, having hit a near
six-year high of $1.7192 last week. The pound fell
against the euro, with the single currency up 0.1 percent at
"Tailwinds from BoE hikes may not be enough to offset
growing downside risks. Investor concerns about the Scottish
referendum in September, general elections next May and a
potential ... "Brexit" (Britain leaving the European Union)
could ... fuel FX implied volatility," analysts from Citi said.
(Editing by Tom Heneghan)