Article by ForexTime

Markets reacted positively to the outcome of the Scottish referendum and the pound rallied on news that Scots voted against independence from the United Kingdom.

After uncertainty in the build up to the referendum held on Thursday and which brought the pound down to ten-month lows, the “No” vote caused a relief rally to a two-year high against the euro and a two-week high against the dollar.

Sterling , rose to a two-year high against the euro, with the single currency trading as low as 78.10 pence. The pound came off its peak against the dollar above $1.65, but was still up a third of one percent on the day at $1.6460.

Equity markets were also boosted, as shares in companies based in Scotland, such as Royal Bank of Scotland and Lloyds rose.

The result of the vote not only keeps Britain intact but also reduces the likelihood of its leaving the European Union, potentially a much greater risk for markets and something Scottish independence might well have precipitated.

Market-based UK interest rates rose, as investors speculate that there are no longer obstacles to the Bank of England’s raising rates as planned, perhaps as early as next year. While there are lots of political questions to be answered, in terms of extra devolution, the economic questions will gravitate back to monetary policy.

The yield on 2-year and 10-year gilts rose in early trade by around 2 basis points to 0.90 percent and 2.61 percent respectively.

The referendum outcome follows two years of increasingly bitter arguments over the economic viability of Scotland’s independence, the currency to be used, custody of the health service and North Sea oil revenue.

Article by ForexTime

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