Market anticipates outcome of the Scottish referendum

Yesterday saw more advances for the pound against the major currencies as the BoE (Bank of England) published their minutes from the most recent policy meeting, showing that for a second month, two officials voted in favour of a raise in interest rates. Claimant count figures dropped to a six-year low with -37.2k claims being made against the forecast of -29.7k providing an early indication to the unemployment rate next month. This news was coupled with positive average earning index data (a leading indicator of consumer inflation), ticking up to 0.6% against the forecast of 0.5% giving Sterling an extra boost. The strength of the pound was highlighted in the fact that both resistance levels published in yesterday’s report were broken (£/$ 1.6311 £/€ 1.2592) as the market started to price in a ‘NO’ vote in today’s much anticipated Scottish referendum. The focus of today will be the much anticipated Scottish independence vote, which has caused much of the market movement for the last 2 weeks. The full results of the referendum will not be known until early tomorrow, however, we expect the market will react to any sniff of a decision throughout today, so expect movement here. Taking a bit of a back seat, we have retail sales data due at 9:30am, forecast at a growing 0.4% against last month 0.1%.

Yesterday saw a relatively quiet day for eurozone. Final consumer price index (CPI) year on year readings ticked up to 0.4% against forecast of 0.3% providing some much needed help to the deflationary problems looming in Europe, with final core CPI readings coming in bang on forecast at 0.9%. However, EUR/USD prices virtually lost any gains experienced from lower than expected US consumer inflation figures. The attention of the market has been very much focused on the Federal Reserve (FED) policy meeting, where the expectation of a hawkish shift towards modification of its forward guidance and further tapering of QE (quantitative easing) by $10bn was expected. Subsequently EUR/USD has been trading within a tight range and topped out yesterday at 1.2981 (IB) – levels to watch here are 1.30 on the upside and 1.2840 on the downside. Today will see the EU release the ‘Targeted LTRO’ at 11:15 this morning. This will provide the total value of the money the (European Central Bank) ECB will create and use to loan to eurozone banks. Loans will be made with an interest rate of eurozone refinancing rate, plus 10 basis points, the value of which will be determined by the demand of the commercial banks targeted.

In the US, CPI data month-on-month came way below the estimate of 0.1% at -0.2% yesterday, with the core CPI data also under-performing at 0.0% against forecast of 0.2%, capping off two days of poor inflation data from the US. Slight improvements in tier 2 home builder data were not enough to stop losses for the greenback against the pound during the day’s trading, with markets breaking through resistance lines, topping out at 1.6358 (IB). However, the FOMC statement yesterday evening gave a more definitive approach to their forward guidance than previous statements, sparking a flurry of late trading with rates hitting the highest levels on the Bloomberg Dollar spot index (benchmarking US Dollar pricing against 10 major currencies) since July 2013. The FED claimed that the economy is expanding at a moderate pace, with inflation below its goal and committed to keeping interest rates low for “a considerable amount of time”, even after the end of their QE program, which has been steadily tapered over the last year and due to end this October. Analysts are speculating the first rate rise since 2006 could come by July of next year, despite unemployment dropping to 6.1% in August against 7.2% a year earlier. FED Chair, Janet Yellen, reiterated her position to focus on a range of economic factors, rather than just the labour market when considering any future moves for the economy.

This can be seen as a strong and positive move for the greenback, which has experienced some strong data results of late, and made good progress against the pound in the last week. Today will give an indication into the housing market in the US with building permits data due at 1.04 pm after which jobless claims data is expected in at 312k. Later in the day we have Philly Fed manufacturing data forecast at 22.8 down from last month’s 28.