Sterling had its worst week in a long time last week (w/c 1 September). Twice it took a pasting after successive polls showed opinion swinging in favour of a 'Yes' vote for Scottish independence.
Although bookmakers' odds still reflect an expectation that the union will remain intact after next Thursday (18 September)'s referendum, the heightened uncertainty has made investors nervous, and they have reduce their holdings of sterling. The pound weakened by an average of -1.6 per cent against the other dozen most actively-traded currencies and it is down by an average of -2.9 per cent on the month.
At the other end of the scale, the Australian and US dollars had a great week. The Canadian dollar was not a long way behind them, and, in its wake, the NZ dollar and the South African rand.
The commodity-related currencies were all helped by a more upbeat attitude to risk among investors. The US dollar won support because the American economic data was by and large better than the figures from elsewhere. A smaller-than-expected increase for nonfarm payrolls did the dollar no lasting damage.
The euro took a hit on Thursday (4 September) when the European Central Bank cut its benchmark interest rates and announced it would spend up to €800 billion on private sector bonds and asset-backed securities.
The ECB's refinancing rate is now down at 0.5 per cent, and its deposit rate is even more negative at -0.2 per cent. The ECB president refused to describe the bond-buying programme as quantitative easing but that is what it looks like, even if the scale of the operation is nowhere near as great as the action taken by central banks in Japan, Britain and the States.
With the result of Scotland's referendum now too close to call, next Thursday will be a big day for sterling. It could turn out to be one it would prefer to forget.
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