Sterling is down this morning on reports that Scotland could call a second independence referendum as early as next month.

Traders said that a report in The Times on Monday stating that the UK government was braced for Scotland’s first minister Nicola Sturgeon to call another vote on Scottish independence in March was behind the drop in the pound.

According to the reports, Ms Sturgeon’s move would be timed to coincide with the government’s triggering of Article 50 as part of its plans to leave the European Union following the UK-wide referendum last summer.

Sterling fell against all its major counterparts on Monday to trade below $1.24 against the dollar, hitting its weakest level in two weeks at $1.2382. Analysts at Citi said newspaper report had been the “catalyst” for the fall.

The euro was up 0.6 per cent against the pound at £0.8534, its strongest level in a week.

Analysts at ING said:

While a tail risk at this stage (given that the UK government are unlikely to cave in to any referendum threats), such risks are yet to be effectively priced into the currency.

Lee Hardman, an analyst at MUFG, said he was skeptical:

The report is highly speculative at the current juncture, and we doubt that it will have a lasting negative impact on the pound.

Also, opinion polls have shown a modest increase in support for Scottish independence since the Brexit vote, but it remains far from clear that holding another referendum would have a different result.

We still continue to expect the pound to strengthen in the coming months benefiting from rising political risk in Europe.

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