In the aftermath of Scotland voting to stay as a part of the UK, all three major rating agencies, S&P, Fitch and Moody’s, sounded optimistic about their credit ratings on the nation. Though the rejection of independence has preserved the country’s current institutional and fiscal framework, sterling has slipped since its highs on Friday morning, especially against the US Dollar.
With looming deflationary pressure in the Euro zone along with last week’s disappointing results from the TLTRO operations, market attention has now shifted to the ECB President, Mario Draghi’s speech scheduled later today for further cues on the policy outlook. Against the backdrop of persistent weakness in the US housing market, today’s existing home sales data will be keenly eyed.
Pound Sterling – UK Markets
After the end of a volatile trading session on Friday, the Pound nudged below the 1.63 mark against the US Dollar after briefly touching the 1.65 level earlier in the day as Scottish voters decided to stay with the UK. Against this backdrop, Moody’s reaffirmed its “Aa1” credit rating on the nation, with a stable outlook. Additionally, other credit ratings agencies, S&P and Fitch, indicated that the Scottish referendum result is unlikely to have any implications on their respective credit ratings as well outlook for the nation. Meanwhile, over the weekend, the UK Prime Minister indicated that he will keep his earlier promises to give Scotland new powers on taxes, spending and welfare, especially after the Scottish leader, Alex Salmond, accused him and other politicians of manipulating Scottish voters to vote against independence.
In the absence of major economic releases in the UK today, investors will keep a close watch on US existing home sales data along with some speeches from Fed officials for further direction to risk appetite. Going forward this week, comments from the BoE Governor will be closely monitored for hints on the central bank’s future policy stance.
US Dollar – US Markets<
The greenback gained ground against the Pound in Friday’s trading session, as improved sentiment following the Scottish independence referendum outcome faded away. Additionally, Fitch affirmed its “AAA” rating on the US and maintained its “Stable” outlook, citing the nation’s strong financial system that can bear a high level of public debt. Meanwhile, the Conference Board’s leading economic survey in the US disappointed investors, mainly due to weak housing permits and new orders for non-defence capital goods. This was in sync with the soft labour and consumer inflation reports released earlier this month.
The US Dollar is trading in a tight range against the majors this morning. A downside in the greenback looks limited following a dim assessment of the global economy from the OECD and G20 nations. Markets will eye existing home sales numbers in the US due later today which is anticipated to show an improvement for August and flare up debate on the nation’s housing market, especially after last week’s downbeat housing data. Additionally, speeches from Fed officials, William Dudley and Narayana Kocherlakota, will attract considerable market attention.
Euro – European Markets
The Euro is trading in a tight range against the majors this morning. Market participants will keep an eye on the ECB Chief, Mario Draghi’s testimony before the European Parliament scheduled later today where investors will keep a tab on his comments for more details about the next month’s asset purchase programme. Although it is unlikely to trigger any major movement in the Euro, his remarks might shed some light on the first tranche of the Targeted Longer-Term Refinancing Operation which failed to reach its auction target. Additionally, today’s preliminary Euro zone’s consumer confidence report will be closely watched and is anticipated to show a further deterioration in consumer sentiment for September. Moreover, traders will await tomorrow’s flash PMI readings across key European nations to gauge the impact of persistent geopolitical tensions in Ukraine on the Euro zone economy.
The Euro traded lower against the greenback and fell below the 1.29 mark on Friday following the release of German producer price inflation data for August. Although these numbers were in line with estimates, prospects of a deflationary threat continued to weigh on the Euro.
Other Currencies – Highlights
The Kiwi Dollar continued to trade in a tight range against the greenback after results of the national elections in New Zealand revealed that the ruling party won a third term. Meanwhile, gains in the New Zealand Dollar were capped following the weekend release of the Westpac report which showed a deterioration in domestic consumer confidence for the third quarter. However, with last week’s GDP report showing signs of a more broad based recovery for the second quarter, markets will keep a tab on additional macro triggers to gauge development in the nation’s economy.
With little on the domestic macroeconomic front today, the Kiwi Dollar is expected to take direction from US existing homes sales numbers and speeches from various Fed officials. Additionally, with the manufacturing PMI numbers in China and trade data in New Zealand scheduled tomorrow, the Kiwi Dollar is likely to witness some volatility against the majors.
Brexit Optimism Lifts British Pound Ahead of May-Juncker Meeting
The US Dollar Struggles to Find Demand on President's Day