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Forecast - Pound to Euro Exchange Rate (GBP/EUR) to FALL if Scotland Votes YES For Independence

September 2, 2014 - Written by John Cameron

The latest Pound to euro exchange rate fell back during yesterday afternoon’s trading session in spite of further evidence that the eurozone economy is falling back towards a recession.

Further losses are forecast for GBP EUR if Scotland votes for independence.

This morning’s Swiss Q2 Gross Domestic Product data was expected to show that the nation’s economy had expanded by 0.5% during the three months to the end of June. The result of 0.0% therefore raised concerns not just about the possibility that Switzerland might be heading for a period of non-positive growth, but that mainland Europe is also heading towards a bleak winter of economic discontent.

Analysts blamed the disappointing Swiss growth print partly on a pronounced dip in domestic construction spending. However, the main contributor was adjudged to be a generalised weakness in levels of demand from the surrounding eurozone for Swiss exports. The development hints at a deep-seated lack of confidence amongst economic participants in the euroland, suggesting that the European Central Bank may need to look at further loosening its monetary policy on Thursday.

Ceteris Paribas, this morning’s Swiss figures should have favoured the GBP EUR exchange rate – instead the pair has dropped down to as low as 1.2573 this afternoon. The reason behind the move lower has been a poor showing for the Pound Sterling on the day due to fears over the potential outcome of next month’s referendum on independence for Scotland. The latest poll from leading research agency YouGov, published early this morning, revealed that the pro-Union lead now stands at just 6 percentage points. This represents a significant tightening of the race – as recently as four weeks ago the ‘Yes’ campaign was leading by 22 points. A decision by Scotland’s voters to end the 307-year old union with Westminster would inject a massive shot of uncertainty into what remained of the UK economy. The markets dislike uncertainty, so the Pound Sterling would be almost certain to ship support in the aftermath of a ‘yes’ vote.

Hans Redeker of Morgan Stanley explained that, ‘with the Scottish independence referendum approaching, the narrowing of the opinion polls is having a more direct negative impact on the Pound.’ The outcome of a pro-independence result in less than 3 weeks’ time could see the GBP EUR exchange rate plunge back down through the 1.2000 threshold sooner rather than later.

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