Sterling hit hard by growing support for Scottish independence

LONDON: Sterling fell and the cost of hedging against sharp currency swings surged on Tuesday, after a poll showed record support for Scottish independence just two weeks before a referendum that poses risks for the pound.

The YouGov poll showed support for the pro-independence "Yes" campaign had risen to 47 percent, a four point gain since mid-August and up eight points since the start of the month. The lead held by the "No" campaign to reject independence has slumped to 6 points from 22 points at the start of August.

The currency is centre-stage in the heated Scottish referendum debate. Pro-independence leader Alex Salmond says Scotland will share the pound while Westminster has been sceptical about such a deal, leading to some uncertainty about the currency, debt and sharing of North Sea oil revenues.

So far, most investors, including those buying Scotland-based stocks, have been sanguine, factoring in only a slight chance that Scotland will leave the three-century-old union.

But with the latest poll leaving the union on a knife edge, investors are growing jittery.

"The currency market is where it will be most acutely felt," said George Godber, manager of the CF Miton UK Value Opportunities Fund.

Sterling shed 0.5 percent to $1.6518, on track for its biggest daily loss since Aug.19 and not far from a five-month low of $1.6501 struck late in August.

Even the euro, which has been struggling on expectations of further monetary easing from the European Central Bank, rose 0.4 percent to 79.35 pence.

Traders said sterling is likely to come under more pressure and could lose as much as 5 percent as uncertainty grows ahead of the referendum.

"Sterling is heading lower ... and will be one to keep an eye on as Sept. 18 approaches," said Angus Campbell, senior analyst at FxPro.

COST OF HEDGING RISES

Britain's stock market has so far shrugged off the impact of a potential break-up, but analysts warn that a "yes" vote could mean big changes for some Scottish-based companies with a global presence.

Banks such as Royal Bank of Scotland and Lloyds have already said that an independent Scotland could have a significant impact on compliance costs, taxes and credit ratings. Scotland's asset-management industry would also be exposed.

Independence might also leave a bitter taste for top whisky producer Diageo, as Scotch whisky is Scotland's second-largest export industry after oil and gas, according to Barclays.