The pound is dropping on Monday after reports that the Scottish government could be set to call for a second independence referendum just as Prime Minister Theresa May begins the formal process of leaving the EU by triggering Article 50.
“There is serious concern that Nicola Sturgeon will use the start of the Brexit process to demand another vote on the future of the UK,” a report from The Times on Monday morning says.
That report has reignited worries in the currency markets about a potential fracturing of the UK, and as a result, sterling has pulled lower to begin the week.
“Meanwhile the focus in FX this morning has been on Sterling which has fallen … after the UK Times reported that PM May is preparing for the Scottish government to call another independence referendum,” Deutsche Bank’s Jim Reid wrote in his daily Early Morning Reid.
Just after 9.00 a.m. GMT (4.00 a.m. ET) Britain’s currency is down 0.48% to trade at 1.2407 against the dollar, as the chart below illustrates:
Opinions on the pound’s relationship with the dollar differ right now, with many more pessimistic analysts forecasting a substantial further drop in sterling’s value. Deutsche Bank forecasts that the pound could drop as low as $US1.05 as the “incredibly complicated” nature of Brexit becomes ever more clear.
However, others see sterling rising in coming months, and Morgan Stanley argued on Friday that the pound should appreciate to the levels seen in the day’s before Britain voted to leave the European Union by the end of 2018.