Pound falls to eight-week low on Brexit, Scottish referendum concerns

The pound fell to an eight-week low against the dollar on Tuesday after the UK parliament approved the government's plan to start the process of leaving the European Union.

At 0845 GMT, sterling was down 0.7% versus the dollar to 1.2131, having earlier traded as low as $1.2109. It was 0.6% weaker against the euro at 1.1397.

The so-called "Brexit Bill" was passed by both houses of parliament on Monday night and is now expected to receive Royal Assent and become law later on Tuesday. Prime Minister Theresa May has said she will invoke Article 50, the formal notification of intention to leave, by the end of March.

Also likely to be weighing on the currency was Scotland's request for another independence referendum, which will add more uncertainty to the Brexit process.

The pound actually rallied on Monday, touching an intraday high of $1.2250 after Scottish First Minister Nicola Sturgeon outlined plans to hold a second independence referendum, an idea that was condemned by May, who said it would create "uncertainty and divisions".

Societe Generale said: "GBP slumped overnight as we approach the point of no return. The threat of another Constitutional crisis with referenda in Scotland and possibly Northern Ireland, in parallel with Brexit negotiations with the EU, may sap confidence in the outlook for sterling assets. If in one way or another the threat of a referendum helps to extract concessions for Scotland/NI and softens the overall hard Brexit tactics of the UK government, then this could cushion another fall in the GBP.

"However, the EU repeated its previously held view that an independent Scotland would have to re-apply for membership under Article 49, so the upside for GBP is probably limited."

The greenback, meanwhile, was being underpinned by expectations that the Federal Reserve will announce a 25 basis points rate hike on Wednesday to between 0.75% and 1.00%.

Spreadex's Connor Campbell said: "The prospect of a rate hike from the Fed is putting pressure on cable from a US-direction, with sterling already softened up by the issues mentioned above (and that’s before we even get into the fact that the Bank of England could sound pretty dovish on Thursday).

Still, RBC Capital Markets said the pound's losses were "small given the deepening of political uncertainty after Scottish First Minister Sturgeon’s call for a second independence referendum".