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Pound up in market ‘relief rally’

The pound has risen sharply and the FTSE 100 Index is expected to follow suit in a relief rally for markets after Scotland’s rejection of independence.

Sterling climbed by almost 1% overnight to as high as 1.65 against the US dollar as traders reacted to the first poll results showing support for the No campaign.

The FTSE 100 Index is expected to open up by more than 80 points when trading on the London Stock Exchange starts at 8am. The pound and stocks with Scottish links have been volatile in recent days after an opinion poll pointed to a surge in support for the independence campaign.

The pound slumped to a 10-month low at just above 1.60 two weeks ago amid fears about the impact that a Yes vote would have on economic stability.

IG’s chief market strategist Brenda Kelly said today: ” We have seen the pound breach 1.65 against the dollar and a strong start to the FTSE is expected, but the current movements are nothing compared to what may have come to pass had Scotland voted ‘Yes’.”

Banks such as RBS and Lloyds, as well as big Scottish firms Standard Life, Aberdeen Asset Management and Weir Group will be closely watched in the FTSE 100 Index.

Ms Kelly added: ” Investors in these firms will be relieved that management will be able to devote their time to business performance, rather than fretting about contract changes or headquarters moves.

“Meanwhile, the capital flight from the pound and gilts should see a reversal too, thanks to the decision of Scotland to remain with the 307-year old union.

“There is still uncertainty, primarily over the new powers to be allotted to the Scottish Parliament and the potential changes to voting on English issues, but these are of importance primarily to politicians and less so to markets.”

Royal Bank of Scotland said its contingency plan to move its registered head office to England in the event of a Yes vote was no longer required.

It said: ” Following the result, it is business as usual for all our customers across the UK and RBS.”

The decision will heighten speculation about when the Bank of England will hike interest rates from their record low of 0.5%. Markets are currently pricing in an increase in February.

Scotiabank economist Alan Clarke said: “The reduced uncertainty is likely to see the market bring forward the timing of the first BoE rate hike again, though within reason.

“Depending on how the pound exchange rate moves in the coming days, this could lead to another downward revision to the Bank’s inflation projection. In turn, that should prevent market expectations of a hike coming too far forward. We still expect the first move to come in February.”

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