Scottish Independence: Why Sterling is Being Kicked in the Teeth Again

Sterling got another kick in the teeth, falling below $1.61 overnight, following another Scottish Referendum poll that showed the Yes and No campaign are neck-and-neck.

Previous to that poll, a YouGov survey survey showed that the Yes vote was in the lead for the first time.

The problem with the financial markets at the moment is (and this is certainly the case for sterling) that up until a week ago, they had not priced in the chance of a yes vote.

So investors had previously thought it was never going to happen, but as the polls narrow and we near the vote people are now asking the question, what will independence mean for my money?

There are so many unknowns in respect of what currency will they have, what will be the share of UK debt, what will be the share of oil revenues, that investors are turning negative on UK assets due to there being so many grey areas and this is dragging sterling lower.

As the referendum nears it is becoming more and more apparent that voters are ignoring the risks to the Scottish economy as this once in a lifetime choice is presented to them.

The markets are telling them something and that something is that the risks to both the Scottish and UK economy are considerable, especially if the UK stays true to its words and refuses Scotland the use of the pound.

The reasons for the rest of the UK taking this stance are simple and stark when you see what's happened across the Channel on the continent when poorer nations within the Eurozone spent wildly, well beyond their means for years in the run up to the sovereign debt crisis.

In such a circumstance Scotland really will be on its own and would almost certainly require some sort of financial assistance which would most likely come from the UK, with stringent terms attached.

But it goes beyond just the currency and economic arguments as we've heard in the two televised debates and endless press coverage there are so many other variables such as welfare, health and defence.

Throw all this uncertainty into the melting pot and you've got a recipe for disaster, a recipe that the markets aren't prepared for.