The markets have known about the upcoming Scotland referendum for months now. And it was largely ignored because it didn’t seem like anything could break up this unhappy union. Now GBP sterling is looking like a currency union all out of nowhere. No one calculated that kind of government risk from the Old Lady. The market has been taken for a loop. This extreme market reaction may only the beginning because it is yet another changed expectation in sterling’s long-term sentiment. Traders are starting to believe that the market could get more volatile still. What I had thought was a non-event just months ago has thrown another interesting fundamental twist to the landscape. A currency crisis could give this reversal some real legs to undo last year’s sterling rally.
- The options market saw this drop coming last week. (WSJ)
- Scotland has to make a clean break. (The New York Times)
- Super Mario is fearless leading the ECB down the yellow brick road of bond purchases. (Bloomberg)
- Speaking of fearless, have you met Wonder Woman Yellen? (The Washington Post)
- This is not a new issue. Did markets miss it or is it actually adjusting to a new reality? (Credit Suisse)
- Scotland may not be Quebec or Texas. (BK Asset Management)
- A good look at cable just before today’s gap and drop lower. (Forex Live)