The dollar powered to a fresh six-year high against the yen on Thursday, while sterling got some respite from a poll that helped calm nerves over Scotland's vote on independence in a week's time. The poll late on Wednesday showed 53 percent of Scots intended to vote against a split from the UK in the September 18 referendum, in contrast to a weekend YouGov poll showing 51 percent in favour, helping pull the pound back from a 10-month low against the dollar.
Britain's business and political elite kept up a barrage of warnings about the consequences of a "Yes" vote, with Lloyds Banking Group and Royal Bank of Scotland both saying such an outcome would prompt them to relocate to England. The bias of opinion among market participants is still that the Scots will not depart and the pound rose as high as $1.6265 - over 2 cents above Wednesday lows - before retreating a little to $1.6247, up 0.2 percent on the day.
Still, the cost of hedging against more sterling weakness for the next week, which covers the Scottish referendum, jumped to a 13-month high of 11.725 percent. "I'm not anticipating that the polls will alleviate the uncertainty now heading into the referendum ... so in that scenario polls will just lead to temporary fluctuations in the pound, and that will add to volatility," said Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi UFJ.
Bank of England Governor Mark Carney warned earlier in the week that the currency union envisaged by Nationalist leader Alex Salmond would be "incompatible with sovereignty". He also warned that under alternative arrangements the Scots might have to assemble many billions in foreign exchange reserves. "There seems to be a lot more understanding in Scotland right now as to what independence would mean for the currency," said Adam Myers, head of European currency strategy at Credit Agricole in London.
"That realisation ... has definitely been picked up by the Scottish media and has quelled the financial markets' panic somewhat, and that's why I think (sterling) goes up today." The dollar has been quietly assembling its best winning streak since 1997 against a basket of currencies and there is growing conviction that it is finally ready to make good on a long-awaited and longer-lasting push higher. Against a basket of major currencies it traded at 84.3268, near a 14-month high of 84.519 reached on Tuesday. Barring a turnaround on Friday, it was on course for a ninth consecutive week of gains as expectations grow that the US Federal Reserve will raise interest rates in 2015.
The move to 107.15 yen was the first time the dollar had topped 107 yen since September 2008 and took its gains to over 5 percent in the last month. "A growing number of people are starting to look for further upside in the dollar," said one Asia-based bank trader. "But the implied volatility on the dollar/yen has fallen today after recent rises... I suspect the dollar's latest rally is already in the middle stage. The dollar could rise to 108 yen, but perhaps not to 110 yen," he said.
The yen also fell against the euro, which hit a two-month high of 138.42 yen. "While Japan has managed to fight its way out of deflation, recently a spate of weak economic data has highlighted the risk that the economy could be falling back into the quagmire," said Jane Foley, a currency strategist at Rabobank, adding that the Bank of Japan was likely to take an aggressive policy stance. The dollar hit a seven-month peak against its New Zealand counterpart, which slid after the central bank said the kiwi's current level was "unjustified and unsustainable". The kiwi slid 0.6 percent to $0.8162, bringing into view its 2014 trough of $0.8052 set in February. Against its Canadian counterpart, the greenback rose 0.6 percent to trade at C$1.1001, close to a 4-1/2 month high.