Daily Report: "YES" campaign for Scotland Independence smashes the GBP

Generally, the Monday after the US Non-Farm Payroll report is a quiet one for the financial markets. Yesterday however could be considered as an exception to this unwritten rule, with the “Yes” campaign for Scotland independence gaining further wind in its sails and European Union members formally adopting new sanctions on Russia in the early hours of Tuesday morning resulting in the EURUSD trading below 1.28 for the first time since July 2013.

The shift in sentiment ahead of the Scottish referendum later this month is clearly causing unease in the markets. The GBPUSD is now trading at 1.6112 for the first time since November 2013, with the pair declining by 500 pips in just one week.

Bank of England (BoE) Governor Carney is scheduled to speak today and looks increasingly likely to be forced to answer questions regarding Scotland. If Carney suggests that this political uncertainty will further delay an interest rate hike, the Cable could reach the low 1.60’s today.

News regarding European Union member states formally adopting new sanctions on Russia have hit the Euro, with the EURUSD currently trading at 1.2886. There are no major scheduled economic releases from Europe until German CPI on Thursday, so any further fluctuation from the EURUSD today will likely be dependent on the market reaction to this afternoon’s US Small Business Optimism.

The USDJPY unexpectedly accelerated overnight, with the pair now trading above 106.270 for the first time since late September 2008. An advisor to Prime Minister Shinzo Abe hinted that the Bank of Japan (BoJ) will need to add further stimulus this to counter a potential Japanese sales tax in 2015, which has encouraged widespread JPY weakness.

The Aussie edged lower overnight and fell to three-week lows following disappointing economic data from Australia. Australian business confidence unexpectedly dropped in August and with this Thursday’s Australian employment report representing a major risk to the Aussie, there are fears that a decline in business confidence will result in reduced business hiring.

The headline of business confidence declining doesn’t bode positively for an economy attempting to move away from mining investment and towards domestic consumption. Australian unemployment is presently at a decade high and a second consecutive weak employment report this Thursday will provide substance behind Governor Stevens previous comments that investors were underestimating a significant drop in the Australian currency. There is potential for a further drop in the Aussie this week.