A Kingdom Reunited, A Currency Relieved

• No campaign triumphs 55-45 after massive turnout in referendum

• Political pressures remain into next year's General Election

• Sterling rallies cautiously to fresh 2 year high vs euro, 5 yr high versus JPY

• ECB TLTRO disappoints with banks only seeking EUR86.2bn of loans

And like that it was over. The referendum on Independence in Scotland has passed and the Union remains as one. At the time of writing, Edinburgh’s win has put the cherry on top of this particular cake and the ‘No’ camp is likely to run out winners by a margin of about 55-45. Of course, they have merely won a referendum to protect the union; it is now time that members in Westminster and Holyrood take steps to reinforce the union. A win for Cameron of this nature and size is probably more politically challenging than squeaking through – how must he now justify promises made in the teeth of a rough campaign to backbenchers who would prefer to turn the screw? I will leave the answers to that to the armchair pundits and the weekend newspaper columnists.

Sterling ran higher almost immediately after the polls closed, capitalising on a strong day in general. GBPUSD has run 3% higher since the low it made in the aftermath of the Yougov poll that showed a lead for the ‘Yes’ campaign, only 10 days ago. Another poll 30mins after the conclusion of voting had the Unionists ahead by 54% to 46%. The pound’s rise was continued by a strong ‘No’ vote in Clackmannanshire – a place that pollsters had suggested would be a decent prospect for the separatists.

With that GBPUSD ran to 1.65 and GBPEUR towards 1.28, the highest level in 2 years. Strong gains were made across the board with GBPJPY breaching the 180 level for the first time since October 2008! The market is taking back some of these gains now that the result has been confirmed. The scale of the retracement in GBP has been decent and some investors will simply be looking to book some profits. There are fears as well, that the aftermath of this referendum leaves the outlook for politics in the United Kingdom in a toxic state of flux only 8 months before a general election.

For sterling we can now retreat back to typical concerns over real wage declines and how the Bank of England’s forward guidance plan will develop. We have to remember that sterling was already on the back foot when this issue reared its ugly head. GBP has rallied overnight but may still find it difficult to extend much higher without a re-emergence of strong data points.

The European Central Bank is going to find it hard to stimulate the European economy if this week is anything to go by. Back in June the bank announced plans to launch a new loan facility for European banks called a TLTRO or Targeted Longer-Term Refinancing Operations that would increase and encourage lending to small and medium sized businesses in the Eurozone. The banks could take as much money as they want and pay it back in 4 years’ time at a rate of 0.15%.

Markets had expected that Eurozone banks would clamour for the funding and were looking for the uptake to be in the region of EUR150bn. They were left disappointed however. Only, and I say only in a way that makes sense solely in financial markets, EUR86.2bn was taken up by the sector.

There are a couple of reasons for this disappointment in our eyes. Since the announcement of this liquidity operation the European Central Bank has also announced a plan to purchase assets from banks in exchange for cash. Banks may be waiting to see what rubbish they can offload at a price before taking on additional funding. There are risks as well over stress tests on loan books due soon.

What this does not do is guarantee that the European Central Bank will start buying government debt anytime soon. We still think that it is unlikely in the absence of further falls in inflationary pressures but are willing to be surprised.

In the grand scheme of things, today is likely to be quiet occasion. It certainly will be me. After 24hrs in the office, I am heading home!

Have a great day and a better weekend.