LONDON: Sterling pulled away from a 10-month low against the dollar and rose against the euro on Thursday, drawing some comfort from a poll which showed those voting in Scotland to stay as part of the United Kingdom were gaining the upper hand.
The poll, carried out by Survation on behalf of the Daily Record newspaper, showed 47 percent intending to vote "Yes" to the split while 53 percent intend to vote against.
The figures excluded 10 percent of people who were undecided. In the past few days, sterling has come under sustained pressure after polls suggested that the pro-independence camp was gaining momentum, having trailed for months. The referendum is due to be held on Sept. 18. Sterling was steady at $1.6220, recovering from $1.6051 - its lowest since Nov. 15 - struck on Wednesday. It bounced in late trade on Wednesday to hit a session high of $1.6231, after the Survation survey was released, but was still 6 percent lower than the highs of $1.7192 seen in mid-July.
The euro eased 0.1 percent to 79.605 pence, well below a three-month high of 80.66 pence struck on Wednesday.
"We see limited scope for much of a bounce heading into next week, with little value being short ... should we see a "Yes" vote," Citi analysts said in a note. "The next poll is expected around the weekend from Yougov, where markets will watch on the previous "Yes" lead."
The uncertainty was driving nervous investors, including hedge funds, to seek protection against sharp fluctuations in the pound, traders said.
The cost of hedging for the next week, which covers the Scottish referendum, jumped to 13-month highs on Thursday. One-week sterling/dollar implied volatility rose to a high of 11.725 percent, according to Reuters data, its highest since July 2013.
One-week options expire on Sept. 18. Many investors fear that a Scottish split would leave Britain saddled with higher debt and a smaller domestic market that could hurt future investments. More debt could lead to a possible downgrade by rating agencies and outflows from Britain.
The pound is centre-stage in the heated debate over Scotland. Pro-independence leader, Scottish First Minister Alex Salmond says Scotland will share the pound, but Westminster has ruled that out, leading to uncertainty about the currency.
Analysts at Bank of New York said that on previous occasions when crises have hit the pound, namely in the mid-1970s when a high budget deficit took its toll, then during 1992 when Britain was forced to abandon the European exchange rate mechanism and finally during the global financial crisis, sterling lost a total of about 32 percent against the dollar.
"On the current evidence the outcome of next Thursday's referendum is too close to call," they said in a note. "Given this, having an understanding ahead of the vote of positioning, the potential risks and sterling's history of large scale moves is of value."
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