The British pound plummeted to a 13-month low against the euro on Tuesday, also falling below the 1.2000 mark against the dollar for the first time since March 2020 amid political tensions. Against the euro, the EUR/GBP pair soared to its highest point since early May, taking in 1.27% today alone.
Sterling had the floor removed from beneath it after the First Minister of Scotland Nicola Sturgeon announced intentions to publish details on plans for a new independence referendum. She added that Scotland’s devolved parliament can forge ahead with its referendum plans without the consent of the British government.
British Prime Minister Boris Johnson is opposed to such a move at this time, according to the PM’s spokesman. The Conservative Party and Johnson opposed the move, arguing that the matter was settled in 2014 after Scots voted against independence by 55% to 45%.
Commenting on the price performance of the British currency, Simon Harvey, head of FX analysis at Monex, noted: “If I were to isolate the (pound) move lower down to one event, I’d most probably say that the Scottish independence risk was the straw that broke the camel’s back.”
No Hope for the British Pound in the Near Term
The GBP/USD has plummeted by over 11% since the start of 2022 amid a depressed economic outlook and worsening political instability in the UK. Meanwhile, the latest data shows that jobless reports climbed higher in 2022, its first rise since late 2020.
The UK currently records one of the weakest economic growth among the wealthiest countries, with forecasts suggesting a continuation of this trend in the coming months. The pound is also plagued by uncertainty over how fast the Bank of England (BoE) can tighten its monetary policy to get inflation under control without having an adverse effect on the economy. The BoE is slated for an upward interest rate review this Thursday.
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