Sterling Gains Ground Against Majors

Sterling showed some resilience against the majors yesterday after another poll survey suggested that Scotland may not break away from the UK. However, it remains to be seen if the sections campaigning for an independent Scotland manage to up the ante before the final showdown next week. Across the Atlantic, today’s retail sales data, along with the consumer confidence report, will be keenly eyed to gauge the pace of recovery, especially after the recent disappointing labour market data. With an extraordinary weekly session drawing to a close, the week ahead also promises plenty of action as traders will remain on the edge amid looming uncertainty over the outcome of the Scottish referendum and the FOMC meeting.

Pound Sterling – UK Markets

The Pound is trading in a tight range against the majors this morning, paring some of its overnight gains triggered by another poll survey showing that the “No” campaign leads the board ahead of next week’s Scottish referendum on independence. With rising uncertainty following the recent mixed poll survey outcomes and a push by the UK Prime Minister, David Cameron, earlier this week, urging voters not to choose independence, Sterling investors are expected to remain on tenterhooks. It will be an interesting next week for Sterling investors, with heightened volatility dominated by news flows surrounding the referendum. Apart from the Scottish referendum, investors have their plates full in terms of macro data in the UK, with labour market data taking centre stage in the next week. Against the backdrop of August meeting minutes revealing a difference in opinion among policymakers, next week’s minutes from the BoE’s latest policy meeting will gain significant market attention to ascertain views among members over the monetary policy stance going forward. Additionally, UK inflation and retail sales data will be keenly eyed for further direction to risk appetite.

US Dollar – US Markets

The number of initial jobless benefits rose unexpectedly in the US last week to reach near its highest level since June 2014, although it continued to remain near its pre-recession lows. The euphoria surrounding recovery in the US labour market has subsided momentarily following yesterday’s disappointing data and last week’s downbeat non-farm payrolls report. Against the backdrop of lacklustre performance of the labor market, investors will keep an eye on next week’s policy meeting for policymakers’ projections for the Fed Fund rates, given the growing anxiety over the future trajectory of interest rates in the US. The greenback is trading in a tight range against the majors this morning ahead of crucial US economic data releases. US retail sales growth is expected to gain momentum for August after reporting a flat performance for the previous month. However, a more than expected rise in retail sales might signal that consumer spending is gaining momentum and might cover up for last week’s soft US employment data. Additionally, the preliminary Reuters/Michigan consumer confidence survey for September is expected to offer another piece of evidence of an improving trend in domestic sentiment.

Euro – European Markets

The common currency was range bound against the majors in yesterday’s trading session following the imposition of a fresh round of EU sanctions against Russia. In the advent of these measures, it remains to be seen if Russia retaliates with fresh sanctions on the EU. With the ECB further loosening its policy stance, the central bank President, Mario Draghi, in his speech yesterday, once again urged individual European economies to implement structural reforms to spur investments. Meanwhile, markets will keep a tab on upcoming economic data during the month to verify whether the recent steadfast measures adopted by the central bank policymakers have lowered the threat of the Euro zone sliding into deflation. The Euro is trading in a tight range against the greenback this morning ahead of the release of US retail sales and consumer confidence reports later today. Additionally, Euro zone industrial production data for July will be watched closely to ascertain if the region’s industrial activity rebounded after a decline witnessed in the previous month.

Other Currencies – Highlights

After the US Dollar-Japanese Yen pair rose above the 107 level yesterday, the Japanese Yen weakened further to reach a one year low against the greenback this morning following the release of soft Japanese industrial activity report. This final report showed a drop in industrial production for the first time since August 2013, as weak domestic consumer spending climate and a drop in exports continued to haunt the nation’s economy. Meanwhile, the Bank of Japan Governor, Haruhiko Kuroda, cited the current weakness in the Japanese Yen as favourable and stated that the economy is expected to recover for the third quarter. Going forward today, US retail sales and Reuters/Michigan consumer confidence reports are anticipated to generate considerable market attention and provide further direction to the Japanese Yen against the greenback. Furthermore, next week’s Japanese trade data will be eyed to gauge the performance of exports for August.