Possibility of Scottish independence causes concern for GBP

The looming prospect of Scottish independence is a current source of concern for the British pound as the latest figures now show that the ‘yes’ camp sit at 51%. Worried forecasters (including Goldman Sachs) fear that GBP might lose as much as 10% of its value if Scotland is to gain independence. The thought is then that trade is due to be lost with Scotland and investors will look to sell-off Sterling. There was a clawing back of value for GBP towards the end of last week against EUR following the European Central Bank’s decision to cut its base and interest rates overnight, along with adding new stimulus. Looking ahead, it should be a busy day for the pound tomorrow with manufacturing and industrial data out, as well as a speech given by Mark Carney, the Bank of England Governor. Still, whatever is due to transpire in Scotland will surely be at the forefront of every economist and market watcher’s mind until the big date on 18 September. Expect GBP to dip further the louder the calls for partition grow.

EUR came under pressure last week as Eurozone manufacturing fell to a 13 month low, with German manufacturing falling to an 11 month low. Inflation is still on the decline and something rapidly needs to be done about it. The European Central Bank has cut interest rates to 0.05% and had also dropped its overnight lending rate. EUR took a hit on the back of this announcement. Some positivity has been seen, however, in the fact that the ECB have stated that they will now look to an ABS stimulus programme of which they will elaborate on in October. Mario Draghi, the ECB chief, has said that there will be no more interest rate cuts (could they go any lower?), but concerns lie that the ABS (asset-backed securities) stimulus will not be good enough to lift the Eurozone out of its slump. On Wednesday we should hopefully see the ECB offer up some more clarity on their recent rate cut, but the euro will most likely remain under pressure for the remainder of the month. What investors need to see right now is clarity on what ABS will entail.

The US dollar was the big winner last week as positive data was seen for manufacturing, construction and business confidence – this may be a sign that an interest rate hike is to occur sooner rather than later. The US economy is, according the Federal Reserve’s Beige book, growing at a ‘moderate’ pace. Trade balance and real estate figures were also shown to be growing at a good rate. There isn’t too much to get excited about in terms of data for the dollar this week, aside from the Fed’s budget meeting and jobless claims data on Thursday, and retail sale’s data on Friday.