Scottish Referendum Knocking Sterling Exchange Rates

3 September, 2014

Simon Eastman

Tuesday was another day of losses for sterling as it seems investor sentiment is being knocked hard when it comes to the Great British pound, as the vote for Scottish independence looms closer and the gap between the Yes and the No votes gets smaller. The YouGov poll on Monday evening showed the lead for the No campaign had dropped by 6 points from 14 percent last month to just 8 percent now. This split and uncertainty as to which way it will go when the vote happens on the 18th of this month is clearly cauing the pound to suffer as we saw a cent wiped off against the euro, a trend mirrored across a wide basket of major currencies.

Ecostats on Tuesday saw UK construction PMI grow faster than forecast last month with an impressive reading of 64 over the expected 61.4. But despite this the pound was again sold off all day against all the major currencies. The US markets compounded the slide once they opened, fresh from Labour Day holidays on Monday, with the greenback taking 1.4 cents over the days trade, with potentially more to go overnight as the Asian markets open. This is now a 4 percent gain by the dollar since July, and for any business buying in dollars from the Far East or US property purchaser, 5 percent is nothing to be sniffed at, adding £400 to every £10,000 worth of stock. EU PMI stats were as expected whilst the array of US data also did little to impress, except for the key ISM manufacturing PMI which exceeded expectations, adding to the bullish state of the dollar.

Today brings the final round of PMI data from around the globe with the Markit services turn to impress or not. EU retail sales also come out this morning which if impressive are likely to help the Euro and its recent gains. Most of note Stateside is actually from north of the border as come lunchtime we have the Canadian interest rate decision. The loonie has been making steady gains against sterling over the past month so investors will be keen to hear what direction the RBC are going when the policy statement is released shortly after.

One would normally expect some decent figures from the UK that the pound should do well, as of late it has, but don’t forget, the Bank of England have publicly stated many a time recently that sterling is over valued and with political unrest one of the four major influences on the currency markets, we shouldn’t expect that shining ecostats will help much if the current uncertainty over the future of Scotland continues.
As always, keep in touch with the team here at CI for daily updates and video blogs, or of course, give one of our traders a call who are always happy to provide their expert opinion and some friendly guidance with any upcoming currency requirement.