Fidelity Worldwide Investment director of asset allocation Trevor Greetham says concerns that the Scottish referendum is driving a downturn in sterling are “overdone” with the pound continuing to offer an attractive opportunity compared to the euro.
Greetham points out that the recent polls on Scottish independence are not the only factor dragging down sterling. In particular he highlights signs of weakness in some economic data from the UK compared to the US which is creating a weakening trend in the pound versus the dollar.
However although not as positive on sterling as he was earlier in the year Greetham says that the “clear policy divergence” between the European and UK’s central banks makes sterling appear attractive versus the euro going forward.
“A run of marginally weaker housing and manufacturing sector data in the UK relative to the US justifies a weakening trend in sterling versus the dollar but he clear policy divergence between likely Bank of England tightening relative to ECB easing continues to favour sterling versus the euro irrespective of the outcome of the referendum on Scottish independence,” he says.
Greetham argues that speculation over whether the most recent YouGov poll putting the ‘Yes’ vote ahead for the first time with under two weeks to go until the referendum has driven the recent slide in the pound is “overdone”, with a ‘No’ vote still “the most likely outcome”.
Even if Scotland does vote to leave the UK sterling would still look favourable over the euro, adds Greetham. He says: “The sell off on Scottish independence fears feels like it’s getting overdone.
“A strong bounce in sterling is likely on a ‘No’ vote, which is still very much the most likely outcome. In the event of a ‘Yes’ things would get messier, though we’d still favour sterling over the euro. It’s hard to argue the Bank of England would hold off tightening in 2015 due to what could be eighteen months of divorce negotiations.”