Scotland Referendum Knocks Sterling

Jitters surrounding the Scottish referendum heightened after a weekend poll survey revealed that majority of votes could possibly be in favour of an independent Scotland. The Pound fell sharply against the majors in today’s trading session, as uncertainty over Scotland’s referendum continues. Across the Atlantic, markets will keep a close watch on US economic releases along with speeches from some Fed officials later this week for further direction, especially after last week’s US non-farm payrolls report poured cold water on prospects of a sooner than expected hike in interest rates. Meanwhile, data during the morning session showed a larger than expected fall in the Euro zone Sentix investor confidence index for the current month.

Pound Sterling – UK Markets

In today’s trading session, the Pound fell sharply against it major counterparts and below the 1.62 mark against the US Dollar after a weekend poll survey showed that pro-independence voters took a lead for the first time after the Scottish referendum campaign began. Investors will be on tenterhooks till the 18 September 2014 vote. Meanwhile, Halifax data released earlier today revealed that house prices in the nation eased for August, adding to signs of moderation in the UK housing market. Later in the week, markets will keep a close watch on tomorrow’s industrial and manufacturing production release, especially after last week’s data showing an unexpected slowdown in the nation’s manufacturing sector. Against the backdrop of contrasting comments from the BoE Governor last month, his speech tomorrow, along with this week’s inflation hearing report will keep market participants on their toes. Last week, the Pound had recovered some of its losses against the US Dollar in Friday’s trading session as dismal US non-farm payrolls report cast doubts over the pace of recovery in the world’s largest economy.

US Dollar – US Markets

The greenback traded range bound against the majors on Friday following the release of dismal US labour market report for August. The number of job additions in the economy was the lowest in the last seven months. Data further revealed that the US unemployment level fell to 6.1%, in line with market expectations, although the fall was merely due to a decline in the labour market’s participation rate. An inconsistent growth in the nation’s jobs market has created uncertainty among investors towards the timing of an interest rate hike, especially after the upbeat manufacturing and services PMI numbers reported last week. In a speech during the weekend, the Philadelphia Fed President, Charles Plosser, the Fed’s lone dissenter, indicated that the central bank is giving too much importance to employment issues in its interest rate decision and an extended period of loose monetary policy is likely to have harmful effects on the economy. With no major decisive triggers today, the US Dollar is trading in a tight range this morning. Traders will keep a tab on speeches from various US Fed officials this week, to provide further direction to the US Dollar.

Euro – European Markets

Following the unexpected move by the ECB to introduce extraordinary monetary easing measures last week, the common currency lost ground against its major peers. However, losses in the Euro-US Dollar pair were capped on Friday following the release of downbeat US labour market report. Additionally, industrial production in Germany rose more than expected for July and consumer confidence in France remained unexpectedly steady for August, keeping the Euro supported. The Euro is trading on a weaker footing against the greenback this morning, amid prospects that fighting in Eastern Ukraine might disturb the truce agreement between Russia and Ukraine. However, the common currency has gained sharply against the Pound after a survey released over the weekend indicated that 51% voters might vote in favour of an independent Scotland in the referendum scheduled later this month. Meanwhile, data released earlier today showed that the German trade surplus widened more than expected, as a weaker Euro helped exports surge for July. Additionally, the Sentix survey has indicated that investor confidence remains subdue in the Euro zone.

Other Currencies – Highlights

The Japanese Yen is trading in a tight range against the greenback this morning. In yet another blow to hopes of a turn-around in Japanese economic activity, data released earlier today showed that the final annualized GDP in Japan, for the second quarter, declined more than expected. The fall in the nation’s GDP was mainly triggered by a slump in household spending due to the sales tax hike in April. The Bank of Japan (BoJ) Governor, Haruhiko Kuroda, recently urged the government to go ahead with the second sales tax hike, expressing confidence that the nation’s inflation might touch the 2% mark by fiscal year 2015. The minutes of the latest BoJ policy meeting, consumer confidence update and machine tool orders data for August are the key releases tomorrow that might provide further direction to the Japanese Yen against the majors.