LONDON: Sterling crept higher on Wednesday, helped by a handful of polls showing the "No" camp holding onto a slender lead in the run-in to Thursday's referendum on Scottish independence.
Nerves remain high ahead of the Scots vote and the cost of hedging against sharp overnight swings in the British pound doubled compared to Wednesday's European close. One-week options imply the highest levels of volatility since 2008.
Against those risks, a slightly bigger than expected fall in unemployment and rise and in wages, had only a brief impact on sterling, prodding the currency to its highest since Sept. 5.
"Overall the numbers on the labour market were pretty good but investors are staying on the sidelines until after the referendum," said Josh O'Byrne, a strategist with U.S. bank Citi in London.
The pound hit a daily high of $1.6337 shortly after the data before settling around $1.6318, up a quarter of a percent on the day. Against the euro, it gained around 0.2 percent to 79.49 pence per euro.
Three new polls published on Tuesday evening all showed support for independence at 48 percent compared with 52 percent backing for the union with the rest of the United Kingdom. They found 8 to 14 percent of Scotland's 4.3 million voters were still undecided before polls open at 0600 GMT on Thursday.
Overnight sterling/dollar implied volatility jumped to 18.60 percent, having closed Tuesday at around 9.4 percent. The equivalent euro-sterling contract rose to 14.5 percent from Tuesday's close of 10.4 percent. The overnight options expire on Thursday as Scots vote.
"These polls have settled market nerves and I think a lot of people are preparing themselves for a No vote," said the head of one bank currency trading desk with an international bank in London.
"If that happens obviously sterling will rebound, but clearly not as much as it will fall in the event of a Yes."
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Bankers' estimates of how much the pound could fall on Friday if the Scots vote to break their 300-year old union with the United Kingdom range from the just over 3 cents against the dollar, implied by some options, to as much as 10 percent.
Further out the outlook is more foggy. Some analysts have talked of the referendum as a shock to the pound to rival the 2007-8 financial crisis or Britain's exiting the pre-euro exchange rate mechanism in 1992.
Both those events were the starting point for sell-offs which eventually led to falls of 29 and 32 percent respectively.
On the other hand, think-tanks and investment banks are increasingly turning their minds to the realities of adapting the Scottish financial system to independence.
With Britain's London-based leadership agreed Alex Salmond's nationalists cannot have the currency union with sterling they are set to ask for after a "Yes" vote, a number of bank analysts say the most likely outcome is some sort of pegged currency arrangement.
A study from Swiss bank UBS - one of the world's biggest traders in foreign currencies - said Scotland would have to spend the equivalent of 58 percent of its gross domestic product on transition costs and establishing the currency reserves necessary for a peg. It put the cost of unilateral sterlingisation lower at 41 percent.
Those estimates were based on the assumption that Scotland walks away from its share of Britain's public debt, something Salmond has threatened if London refuses to share the pound after a split.
UBS economist Paul Donovan said the costs could be less if the two sides reached an amicable split and sought to launch the new financial settlement with the minimum of market volatility. But in the event that the settlement is less amicable, he said, the figures could also be higher.
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