Maybank FX Insight - GBP Pricing in Calibration Fears

GBP: Pricing in Any Calibration Fears

§ Expect a baseline scenario of no Scottish independence based on economic considerations.  § A “Yes” vote could still have Scotland remaining within UK for at least next 18 months. So the impact on the GBP may not be as sharp as expected. Our current GBP/USD fair value estimates which includes trade fundamentals, interest rate differential outlook and net foreign assets are at around 1.66 which slightly higher than current levels. This suggests that a “No” vote outcome next week is likely to see a swing back up towards the 1.65 level and beyond subject to the dollar fluctuations.   § We hold the baseline view that the Scottish referendum will likely lead to a “No” vote and may likely see a retracement back towards 1.66 by the end of 2014 with upside constrained by the dollar strength over next few months. We see a baseline 3mth, 6 mth and 12 mth outlook at 1.66, 1.63 and 1.64.