LONDON: Sterling hit a fresh seven-month trough against the dollar on Wednesday despite some upbeat British data, as investors fretted that Scotland may yet vote to break up the UK later this month.
A poll on Monday showed the pro-independence camp just 3 percentage points short of a "Yes" vote in the Sept. 18 poll, prompting the first major bout of nerves around the issue among financial market players. That compared with a poll at the start of August that had shown a 22-point lag for the "Yes" vote.
Research released on Wednesday by U.S. bank Goldman Sachs saying that Scottish independence could have a "severely negative" impact on the UK economy added to investors' worries, sending sterling to $1.6442 -- its lowest since February.
Earlier, a stronger-than-expected PMI reading from the UK's service sector gave sterling a little respite, seeing it rise to $1.6498 after the data was released, but the currency later retreated.
The pound was left down 0.1 percent on the day after having already fallen more than 0.8 percent on Tuesday - its biggest daily fall since January.
Even the beleaguered euro has gained around 1 percent against the pound since the poll was published.
Separate data showing that the UK economy has grown more than previously thought in the last few years, which some said could help persuade the Bank of England to hike interest rates sooner rather than later, failed to provide any further support for the currency.
"What has been happening and intensifying over the last two days is that political uncertainty related to Scotland is keeping investors away from engaging in long positions in sterling," said Manuel Oliveri, a currency strategist at Credit Agricole.
"We don't think sterling has much more downside from these levels and we remain biased on dips, because ultimately political uncertainty will get resolved; ultimately it will be growth prospects that drive the currency."
A Reuters poll published on Wednesday showed that currency strategists expect sterling to hold steady against the dollar in the coming year because markets have already priced in higher interest rates, but only if Scotland votes "no" to independence.
POLICY MEETINGS
The BoE's rate-seeing Monetary Policy Committee (MPC) started its two-day monthly meeting on Wednesday and is expected to keep interest rates at their record lows on Thursday, despite two of the nine members having voted in favour of a rate rise.
The consensus of economists polled by Reuters is that the BoE will hike interest early next year, before the U.S. Federal Reserve.
Before the European Central Bank's monthly policy decision on Thursday - the market's main focus this week - the euro strengthened slightly against sterling to 79.84 pence , up 0.1 percent on the day.
"This sort of data does always give one food for thought and there is a natural pause before a big policy meeting like this, but I am still bearish on the pound," said Neil Mellor, a strategist with Bank of New York Mellon in London.
Mellor was one of the first strategists at the major currency trading banks to turn heavily bearish on sterling earlier this summer and he said he saw little chance of it resisting further losses against a resurgent dollar. He said the next target for the pound would be around $1.6280.
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