GBP falls back again after excitement of Scottish vote

United States Dollar:

Overall, the pound’s reaction to the Scottish ‘no’ vote was fairly muted. It traded to a high of 1.6515 vs. the USD early on Friday morning but then drifted lower throughout the day. Although the initial reaction was positive, investors “sold the fact”; this after “buying the rumour” throughout the day on Thursday. Things should start returning to normal now as markets turn their attention back to UK economic data and the Bank of England’s monetary policy outlook. Moreover, investors will be closely scrutinising any divergence between Fed and BoE monetary policy over coming weeks. If data continues to show signs of improvement, it brings with it the stronger possibility of a rate hike early next year and this in turn could see GBP/USD push back towards 1.65 in the near-term. There isn’t a lot of data due this week – US New Home Sales, Durable Goods Orders and Unemployment Claims will be the key releases over the next five days.

Euro:

EUR/USD also drifted lower on Friday, dropping from 1.2894 to a low of 1.2822. After the Scottish referendum, attention is now re-focusing back on what the ECB will do next in terms of monetary policy – there is some concern after the TLTRO failed to live up to expectations last week. The central bank made €400 million available as loans to banks at a rate of 0.15% but the take up was poor; 255 banks took part and borrowed only €82.6bn. There may be a few questions asked of ECB President Mario Draghi about this today, as he testifies on monetary policy before the European Parliament’s Economic and Monetary Committee. Later in the week, Services and Manufacturing PMIs are released from Europe. Meanwhile last week there was some volatility in the GBP/EUR cross – it topped out just above 1.28 but has since settled lower to open this morning at 1.2715.

Aussie and Kiwi Dollars:

The National Party were re-elected in New Zealand’s elections over the weekend. John Key remains as Prime Minister, but it didn’t come as too much of a surprise to financial markets. NZD/USD bounced 25 points as markets opened in Wellington but it has since fallen lower to open in London at .8120. AUD/USD has continued to fall in the last 12 hours or so, dragged lower in some degree by the fall in the value of the euro. There isn’t a great deal of economic data due from Australia this week – RBA Governor Stevens is due to speak on Thursday whilst Chinese HSBC Flash Manufacturing PMI on Tuesday may also exert some influence over the currency.

Data releases for the next 24 hours:

AUD: No data

EUR: German Buba Monthly Report, ECB President Draghi Speaks, Consumer Confidence

GBP: No data

NZD: No data

USD: Existing Home Sales