On Friday 5th September, GBPUSD closed at around $1.63 and reopen at $1.615 with a big gap equivalent to 160 pips on the back of a voters favouring Scottish independence. As we can see from the chart, the currency pair has been affected by the recent upcoming events related to the Scottish referendum that threatened a potential separation of Scotland from the U.K.
If Scotland splits from the UK, there are many aspects to be analysed. First, how will the UK and Scotland share revenue, debt and currency. It is estimated that 8% of the total U.K. population live in Scotland and a tenth of the GDP comes from there.
Let’s try analyse what are the consequences of a Yes or a No vote in the short and long term.
In the event of independence, the UK GDP is expecting to decline in the short term by 0.5% as uncertainty causes companies and people to defer consumption and investments. As a consequence a lower GDP would delay a BoE rate hike for at least 3 to 6 months.
Scotland could then create its own central bank and opt for another currency but liabilities would increase as 90% of the north sea oil and gas could be lost, thus worsening the trade balance. Worst case scenario is Scotland refuses to pay part of the national debt in the event of a break away from the Pound.
In recent weeks, J.P. Morgan said that in the event of a “No” vote GBPUSD exchange rate could see a decrease by 7%, Instead in the event of a majority ‘Yes’ Vote, “better together” campaign, Merry Lynch forecasted a potential gain of 3-4%.
As you can diagram below the situation is quite chaotic and also spread between “yes” and “no” vote is tightening:
There are several opportunities for speculators as volatility increase. In terms of statistical analysis, there is the 68% of probability that the price will stick to a $1.5850 – $1.6550.
To know more of the outcome we just have to wait few days.