This week in the markets: Scottish ‘Yes’ votes weigh heavily on the pound
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It was a public holiday throughout North America on Monday but that didn’t stop it from being a volatile week in FX markets. GBP initially bounced higher early on in the week, but it didn’t last long as a YouGov poll released on Tuesday showed that support for Scottish independence had jumped to 47%, with the ‘no’ lead collapsing to just six points.
This countered the good UK Construction PMI reading (being the strongest reading in seven months) and weighed heavily on the pound throughout the day, whilst it also came against a backdrop of a generally stronger US dollar. The USD got a further boost following the release of US data on Tuesday, as ISM Manufacturing PMI and Construction Spending both came in above market forecasts.
Even a strong UK Services PMI, released the next day, could not save the pound. The growing ‘Yes’s’ are likely to continue weighing on the pound and news surrounding this story will continue to dominate trading activity this week. This is likely to usurp any strong data releases and comments from Carney along the way – at least in the run up to 18th September.
By Alex Edwards at UKForex, an international money transfer service
GBP/USD was dragged lower by the big sell-off in EUR/USD on Thursday, as the European Central Bank announced a host of measures to boost growth and stave off the threat of deflation in the Eurozone. The central bank took markets by surprise and announced a cut in the main refinancing rate, the marginal lending rate and the deposit rate facility. ECB President Mario Draghi also announced that the bank would be buying asset-backed securities (ABS) as well as other plans to buy repackaged debt, designed to revive lending in the economy and support some struggling banks.
The central bank stopped shy of announcing “full blown” quantitative easing, but we will find out in October how much the ABS program will be. This package of measures isn’t quite what markets were expecting. In fact there were a lot of commentators out there that suspected the central bank would do nothing and take a wait-and-see approach. With this, the euro snapped lower across the board on Thursday – EUR/USD fell from 1.3149 to a low of 1.2920 and EUR/GBP gapped from .7990 to .7900.
Meanwhile US economic data, released later in the week, was also strong and further fuelled demand for the USD; trade balance, Final Services PMI and ISM Non-Manufacturing PMI all printed better than expected. But then, US Non-Farm Payrolls promptly disrupted the trend on Friday. It showed that only 142,000 jobs were added to the US economy in August, the lowest number this year and under expectations of 230,000 jobs. It doesn’t quite mean we’re back at square one, as other economic data from the U.S. has been positive of late, but it will no doubt put a few doubts in the minds of the Fed hawks.
As for the week ahead, Carney is due to speak on Tuesday whilst the Inflation Report Hearings follow on Wednesday. There’s a smattering of data from the US later in the week including Retail Sales.
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