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Credit Agricole: Recent GBP drop connected with Scottish independence vote - eFXnews
FXStreet (Łódź) - The eFXnews team comment on Credit Agricole 's observation that since the beginning of July GBP/USD fell to 1.611 from 1.719 and as the drop accelerated last week it is most probably due to the market pricing in risks of Scotland voting 'yes' in the independence referendum.
Key quotes
"Position squaring explains some of the move, as the UK economic data has modestly decelerated in Q3 and the market has cut back some its long GBP holdings. However, nearly half of this move has taken place over the past the week, suggesting that the market has started to price in the risks of a breakup."
"We take a stab at the potential implications of a 'yes' vote on September 18, which in our view are considerable. The biggest risks are the destabilization of the banking system and the potential for a sharp rise in the UK’s debt burden."
"Furthermore, the debt build-up could also weaken the growth prospects for Scotland (and the rest of the UK) but it would not have currency control to lessen the impacts."
"Indeed, the BoE would still dominate Scotland monetary policy."
"Corporate investment and consumer spending is likely to grind to a halt amid economic and regulatory uncertainty."
"All told, the long-term outcome of a possible 'yes' vote is a re-run of the Eurozone crisis – namely the dangers associated with fiscal sovereignty and a shared currency."
"While we stick to our view that Scotland will likely vote 'no,' be prepared for sharp drop in GBP if the Scot’s decide to leave."
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