Yes or No on the referendum will mean much to both the currency market and the major Scottish businesses who will be in the firing line of volatility.
First up are the companies that currently sit in the UK FTSE 100. So far, if the vote is for independence there will be a cooling off and transference period predicted. However, little has been muted regarding the Scottish FTSE 100 companies, apart from falling out of the EU, possible higher taxation, and additional costs for their own regulators – certainly not an attraction for investors in companies such as SSE, Standard Life, Royal Bank of Scotland, Weir Group, FirstGroup and The Alliance Trust.
And what of investors in these companies? If the vote is for independence, the UK will want to stabilize the markets with the Scots staying in sterling for the near future. So though the currency will be volatile and lead to weakness in GDP, with a predicted sharp spike on EUR/GBP, the UK will push for stability and probably achieve it.
A No vote will bring a short term rally in the Pound and Gilt market, especially GBP/USD but as the polls are forecasting a close call, markets will still worry about future referendums. The prediction is for the EUR/GBP to stabilize in approximately a year.
Meantime, the FTSE 100, following a Yes vote is predicted to downturn to a possible low of 6000. If No is the outcome and the Scots stay in the UK, the sharp rally will point up to possibly 6950, with positive sentiment giving additional boost to record levels of 7000 – at this rate, the bulls could take control and push the FTSE up and up.
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