Scotland will hold a referendum on whether it should be an independent country that will take place on Thursday September the 18th, 2014. Residents of Scotland will be able to vote yes or no on the question “should Scotland be an independent country?” If a simple majority votes yes, the process of Scotland leaving the United Kingdom will commence; whereas if a simple majority votes no, Scotland will remain within the United Kingdom. According to exit polls prior to the independence question, no and yes voters are in balance and the outcome will most likely only be known after each vote has been counted.
How does a referendum impact the Forex market?
The referendum choice will impact the Great British Pound (GBP) due to the fact that an independent Scotland could opt for its own currency. The principal options of Scotland are keeping the Pound, choosing to implement the Euro or establishing an independent Scottish currency.
What will happen to the GBP during the referendum?
How the market will respond to the referendum vote will remain a question mark to the very end, but certainly there is a chance of increased volatility on the GBP in the run up, during, and after the referendum. Be extra cautious with trading the GBP on the referendum day.
How will the vote impact the GBP in the long run?
A UK without Scotland would translate into a smaller economy, which in the long run means more Pounds circulating for less economic activity and is a bearish affect on the GBP. There is also the question of whether Scotland will take over its share of the UK debt. If it doesn’t, the debt versus GBP will increase, which also could have a bearish impact.
What the impact would be of an independent Scotland on the British and Scottish economy, politics, unemployment, life, diplomacy, currency, and many other topics remains unclear. Both the yes and no vote campaign spell danger if their vote is not chosen. In reality, both the referendum choice and the effects of the choice are difficult to predict.
For currency traders: they can expect the referendum to increase volatility and to present itself as an unknown variable throughout this week. In the long run a GBP with Scotland should be more valuable than without Scotland, hence generally speaking a bearish effect might take place if the yes vote wins (yes to independence) whereas a bullish impact might occur if the no vote wins. However obviously any attempt at a prediction could be the equivalent as throwing the dart at a board: who knows what the number will be?
Do you have expectations how the GBP will respond to the vote?
Will you be trying to trade during the referendum or will you in fact be more cautious or even stop trading during this day?
Let us know down below!
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