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The pound’s vaccination-driven rise lost some momentum in early April as tension in Northern Ireland resurfaced and the Scottish elections loom. Brexit was never a unifying political moment, and the deep constitutional questions over the future of the United Kingdom are beginning to simmer. The potential for difficult domestic politics amid Brexit uncertainty raises questions over sterling’s path in the medium term, as reported by ANZ Bank.

Concerns on Northern Ireland and Scotland emerge

“We expect calm heads will prevail in the issues over the Northern Ireland issues and that politicians on all sides will work hard to resolve the situation. There must be a pragmatic solution to border checks. It is not in anyone’s interests to allow tension to escalate or for UK-EU relations to deteriorate.”

“In Scotland, we must wait for the outcome of the 6 May elections. Despite looming large, a referendum on Scottish independence is unlikely in this UK Parliament, if only because it is not to Johnson’s advantage.”

“Both issues have the potential to temper positive sentiment towards sterling, and it will be important to monitor how they develop in coming weeks. For now, we would describe these risks as ‘on the radar’ rather than the central case. It is our assessment, however, that both issues have contributed to GBP’s weakness recently.”