Rupee slips, pound gains weight

Following Scotland voting to stay as part of the United Kingdom in a referendum on independence, the pound strengthened in international markets. As a result, the rupee weakened against it.

In the recent past, the rupee had strengthened against the pound, on rising speculation that Scotland might no longer be part of the UK.

“The split from the union was expected to be disruptive and the pound was looking vulnerable. Now, a downside has been averted. The global impact was not expected to be large, since the UK, though part of the European Union, is out of the currency area (it did not adopt the euro when most of continental Europe did),” said Harihar Krishnamoorthy, head, fixed income, currency & commodities, First Rand Bank. He said the effect on the rupee was through the trading dynamics of global currencies.

Scotland's decision to stay on also eased investor concerns after a recent run of global political obstacles. “Going forward, if there is major appreciation of the pound against the dollar, then only can we see an impact on the rupee; else, no,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

On Friday, UK shares helped lead European equities to a six-year high and the pound rose to the strongest level in two years against the euro, after the 'Better Together' campaign posted a wider margin of victory than opinion polls had suggested.

The outcome follows two years of increasingly contested argument over the economic viability of independence, the currency to be used, custody of the health service and North Sea oil revenue, leaving a legacy of a divided Scotland, while inspiring more self-determination movements across Europe.