Market News & Insights
16 September 2014

Scotland’s Thorny Flower Continues to Sting

EUR/USD 1.2945
GBP/USD 1.6170
GBP/EUR 1.2490 (0.8006)
EUR/CHF 1.2089
GBP/CHF 1.5116
GBP/AUD 1.7960

As stated in yesterday’s commentary this week’s fundamental data from all the major crosses will be very much overshadowed by Thursday’s poll when after 307 years of union with England, four million Scots will decide the faith of country’s independence. However while the voting takes place this Thursday, it won’t be until the following morning when the unofficial estimated time of the result is around 7am on Friday. The poll had up to a fortnight ago been overlooked as an almost foregone conclusion, however the Sept 6th YouGov poll saw the tides change as the Yes campaign showed a 51% vs. 49% in favour for an independent Scotland. This result along with a string of other mixed polls has seen cable hit 10 month lows and the pound is again losing some ground this morning down half a cent or 0.33% against the US dollar at $1.6175. While the impact of a Yes vote is relatively unknown, there has already been five banks which are registered in Scotland that say they plan to move their registrations to London in the event of a yes vote for independence, these include Royal Bank of Scotland, Lloyds Banking Group, Clydesdale, Tesco Bank and TSB.

However as important as the above is, the show must go on and we have a number of other major releases from both the UK and Eurozone. We start with the UK where we have inflation figures due for release this morning at 9:30. The market consensus for the CPI figure is for the rate to fall further back to 1.5% versus 1.6% in the previous month, which would be well below the official 2% target. While the year on year core inflation figure is expected to remain unchanged at 1.8%. Apart from the spike reading in the CPI June figure, we have seen the inflation reading decline steadily since the beginning of the year. Today’s figure could again reiterate the MPC’s rhetoric that “there remains insufficient evidence of inflationary pressures to justify an immediate increase in Bank Rate”. This quite dovish stance will be echoing in the ears of traders today as a big miss here could see some further sell off. However there is also potential for some upside here if results show a stronger figure for inflation, this is on the back of last month’s minutes which showed a split in the MPC’s voting on raising interest rates, the first since July 2011.

To the Eurozone now and the headline figure from the single currency is the German Zew Sentiment Survey, with market consensus for the figure to see a further weakening in September to 5.2 vs last month’s 8.6 figure. This index figure has been very weak of late as it falls closer and closer to a change of outlook from that of optimism to pessimism (a reading below 0.0). Last month’s reading saw this figure fall to its lowest level in almost two years, and if market consensus is correct for today’s reading then will see this figure lower again and well off January’s 61.7 reading.

In the US we have PPI data out this afternoon which could act as a catalyst for the dollar today. The forecast is of no change in the prices in August compared to the last month. Therefore, if the end figure is on the positive side, then the US dollar might trade higher again in the short term.

If you have any questions around the Scottish Referendum and how to position for this event please feel free to contact us any time.