As the Scottish independence vote is finally taking place today, Nomurs is out with a note outlining its strategy for playing GBP after the vote:
Strategy after a Yes vote
In the event of a “yes” vote, we recommend to continue shorting GBP against USD rather than EUR. An earlier tightening by the Fed than other G10 central banks is the primary reason, but we judge the “yes” vote will increase the likelihood of Brexit, which will be more negative for the euro area economy than the US economy. In addition, the “yes” vote may also accelerate momentum in the independence movement in some parts of the euro area. We expect EUR/GBP to rise after the “yes” vote, but we prefer to stay short GBP against USD than EUR after the “yes” vote. Our economist believes the BoE can still start hiking in August 2015 after the “yes” vote, which is earlier than our clients expect. The likelihood of a May 2015 hike cannot be ruled out, if the general election is postponed until after independence takes effect in 2016.
Strategy after No vote
Our main scenario remains a “no” vote, and we expect GBP to rebound against USD and EUR. In the short term, GBP could appreciate more strongly against USD than against EUR, as we judge investors take more GBP short positions against USD. However, in the medium term, we see more upside room for GBP to appreciate against EUR, because of the expected appreciation of USD against broader G10 currencies. Our current GBP/USD and EUR/GBP forecast into end-September are 1.63 and 0.78, under the assumption of a “no” vote. If the initial reaction in EUR/GBP is relatively small to 0.79 or so, renewed EUR/GBP short positions make sense to us.
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