Volatility expected ahead of 18 September vote

Yesterday saw sterling appreciate against the majority of its 16 major peers - this as a direct result of "no" taking the lead in the Survation poll for Scottish Independence. Many now feel the momentum has swung in favour of a “No” which is taking a significant amount of pressure off of the pound. The significance of this turnaround is huge as this is first time the vote against independence has taken the upper hand since early August. The swing in favour of the “No” caused a spike against the dollar, reaching highs of 1.6270 (IB). This spike was, however, short-lived as the rate fell back - stabilising around 1.6220 (IB). Sterling had another positive day against the ever-resilient euro; however, these gains were not as significant and again soon retreated from the highs. Given the lack of fundamental data out of the UK today and early next week, market participants will be closely monitoring the next YouGov Poll this weekend for the Sunday Times in the hope it provides a slightly more definitive indication as to the result on the 18th.

In the US, we saw the number of new applications for jobless benefits rise last week to the highest level since June, fears were quashed as the result showed near pre-recession lows were maintained. The figures showed that 315k filed for unemployment aid - 11k higher than the revised consensus. The jobless claims report showed the number of people still receiving benefits after an initial week of aid rise 9,000 to 2.49 million in the week ending august 30th, again very close to pre-recession lows. As we look at today, US retail sales are due to be released. The feeling here is that we can expect quite an aggressive figure to be posted. Last month (July results) saw a result of 0% with consensus for this month (August results) sat at 0.6%. It will be interesting to see how this affects the sensitive Pound, however, a lack of retail sales momentum could be the driver to see Sterling challenge 1.63 (IB) but some analysts are expecting the figure to be closer to 1%.

Yesterday saw the Euro stem its decline vs the Dollar as the market waited patiently for ECB President Mario Draghi’s speech. Draghi spoke last night in Milan and discussed the currency bloc at length. He stated that Euro area sovereign governments had to work closely with the ECB before pre-crisis growth levels returned to the Eurozone. Draghi then went onto say that no fiscal stimulus or monetary stimulus can be successful unless unaccompanied by the right structural policies and the reinstallation some confidence from Government to consumer. “The level of business investment in the Euro area has only slightly improved since 2008, whereas in the U.S. it is above its pre-crisis level,” Draghi said. “We will not see a sustainable recovery unless this changes.” It would seem once again that Draghi is adopting his “do whatever it takes” attitude that we have witnessed be quite unsuccessful before. This could well be seen as hugely positive for the Euro area, however, on Monday of this week news was received that the Draghi plans to adopt an “unspoken policy” whereby they weaken the Euro by as much as 10%.

Commodity currencies saw a bad day of trade, with the US dollar being the major winner across the board. Both the Aussie and Kiwi were down with the AUD hitting a near six month low against the Greenback. Yesterday the price of iron ore fell whilst the USD continued to rally on the back of more and more speculation that the Federal Reserve might raise its cash rate earlier than expected. The Aussie has depreciated 2.5 cents against the greenback this week alone and there could be further pain for Australian dollar with the fear of job growth falling short of expectation. Yesterday will prove to be an important week for the AUD as GDP results are released late on Wednesday night.