Sterling plummets on threat of Scottish Independence

Claire Hogarth09/Sep/2014Currency Updates

GBP

Sterling suffered its worst trading day in 13 months, dropping 0.9% on the euro to reach prices not seen since early June. The pound also fell a full percent against the dollar to touch its lowest levels since November of last year. In the aftermath of the Sunday Times / YouGov poll showing the Yes camp at 51% to the No’s 49% amongst more firmly positioned voters, the UK government put together a proposal for greater devolutionary powers for the Scottish parliament in an effort to cease the perception amongst Scottish nationalists that remaining in the union would deny any opportunity for greater political autonomy.

This did little to reassure markets however, as the FTSE 100 slipped a further 0.3 from the indices recent 14 year highs as large businesses with significant business interests north of the border saw valuations damaged by the market uncertainty.

Yesterday saw only minor market data releases, most notably the Halifax House Price 3 month rolling index for August dropped to 9.7% growth from 10.2% for the 3 months to July.

Today Mark Carney will be speaking whilst a deluge of data pertaining to Industrial and Manufacturing data as well as UK trade balance for July is released. Later in the afternoon NIESR will release their GDP estimate for the past 3 months, a reliable indicator for the official figure.

EUR

Having been pummelled by its biggest single day drop since 2011 last Thursday following the ECB’s policy statement, the euro had a steady start to the week, ceding only 0.1% to the dollar and gaining 0.2% on the yen.

The effect of the euro’s depreciation over the past few months was shown by the swelling of Germany’s trade balance, pushing to €22.2B in July from €16.4B the previous month. Exports leapt 4.7% and imports declined -1.8% when forecasts had predicted more modest swings, at 0.5% export growth and a -0.7% import drop respectively. The return of German balance of payments dominance only created a short term boost for the single currency however, as Sentix’s Investor Confidence Survey hit a bearish -9.8 for this month, way down from 2.7 recorded in August and the market consensus expectation of 2.0.

Today the French government announces the results of its budget for July, as well as its trade balance, exports and imports figures.

USD

The usual post NFP release data lull, following Friday’s disappointing 142k reading, did little to abate dollar strength, which punctured 14 month highs against a basket of its most traded currencies. This was driven by both the sterling sell off and the Aussie dollar’s recent resilience to the greenback faltering. US Treasury yields in the form of 3 & 6 month bill auctions slipped on the back of worries over the validity of the Ukrainian/Pro-Russian separatist cease-fire.

Those fears may have been curbed by last night’s confirmation from President Poroshenko that the separatists released 1,200 prisoners as part of an exchange negotiation that was included in the ceasefire agreement.

The lack of market information continues today, with Redbook index data and a 3 year Note Auction unlikely to create pivots. The Federal Reserve has its September meeting next week, where it is expected its tapering of bond-buying will continue on track for October, where its quantitative easing program will end.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.