Sterling at 2-year high as Scots reject independence

Sterling climbed to a two-year peak against the euro and a two-week high against the dollar on Friday after Scottish voters rejected independence, averting a break-up of the United Kingdom and prolonged uncertainty.

Scottish nationalist leader Alex Salmond conceded defeat in the independence referendum held on Thursday, ending a few weeks of sharp fluctuations in UK financial markets.

The pound jumped to $1.6525 in Asian trade, its highest since September 2nd, as early results pointed to a victory for the Unionists. It pared some of those gains to trade at $1.6465, still up 0.4 per cent on the day and well above a 10-month low of $1.6052 it reached on September 10th.

It rose to a two-year high of 78.10 pence per euro and a six-year high of 180.70 yen. Traders and analysts said with most of the uncertainty stemming from Scotland vote out of the way, investors are likely to focus on economic fundamentals and interest rate expectations.

The cost of hedging against sharp fluctuations in the pound also fell, after rising to four-year highs in the past two weeks after polls showed the referendum was too close to call.

Sterling overnight interbank average rates are pricing in the chance of a first rate increase by the BoE in the spring of 2015. Analysts said sterling stood to gain more against the euro and yen, since both the European Central Bank and the Bank of Japan are likely to pursue ultra-loose monetary policy.

The Federal Reserve reiterated this week that near zero rates will be maintained for a considerable time, but policymakers also indicated they expect faster rate hikes next year and the year after. The Fed nudged up its expected path of interest rate increases - or Fed dots - boosting yields on US notes, and hence the appeal of the dollar.

The dollar stood tall against the yen, scaling a six-year high as a drop in US jobless claims reinforced the market’s view of the diverging trajectory of US and Japanese interest rates.

The dollar jumped to as high as 109.46 yen before stepping back to 109.14 yen, still up 0.4 per cent on the day.

The dollar index, a measure of the greenback’s value against six currencies, climbed to 84.743, its strongest in more than four years and last stood at 84.436.

The euro was trading softer, at $1.2892, having hit a 14-month low of $1.2834 on Thursday.

It has been under some pressure after the ECB handed out a below-forecast €82.6 billion euros in its first offering of four-year loans on Thursday. Traders said the lower take-up would keep pressure on the ECB to opt for quantitative easing.

Reuters