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10 Sep 2014
Scotland referendum taking a toll on GBP – Rabobank
FXStreet (Edinburgh) - Senior Currency Strategist at Rabobank Jane Foley assesses the scenarios for GBP pre/post Scottish referendum.
Key Quote
“Looking beyond the Scottish opinion polls, there has been another clear change on the FX landscape this week. The report published earlier in the week by the San Francisco Fed suggesting that the market may be behind the curve in pricing the Fed tightening cycle has awakened investors to some unfriendly news”.
“The USD has benefitted across the board from fear that the FOMC may present a more hawkish front at next week’s FOMC on Sept 16/17”.
“Depending on the market’s evaluation of the Fed’s commentary next week it is possible that that even on the event of a Scottish ‘no’ vote on September 18, cable would be unlikely to be able to regain all of this week’s lost ground”.
“Even if Yellen re-asserts a dovish tone next week and sparks profit-taking in long USD positions, our expectation that the USD has embarked on a recovering trend after many years of weakness suggests that cable will remain under pressure medium-term”.
“This week’s move in GBP money market rates indicates that the market has indeed pushed back its expectation of the first BoE rate hike until the spring”.
“Based on the lack of growth in the Eurozone, weak UK wage growth and the difficulties that most developed world central banks are having in promoting a recovery demand despite ultra-accommodative policies, we have been of the view that the UK market had got ahead of itself in pricing in the first UK rate hike”.
“A ‘yes’ vote in Scotland next week would likely spark an additional knee-jerk fall in the value of GBP”.
Key Quote
“Looking beyond the Scottish opinion polls, there has been another clear change on the FX landscape this week. The report published earlier in the week by the San Francisco Fed suggesting that the market may be behind the curve in pricing the Fed tightening cycle has awakened investors to some unfriendly news”.
“The USD has benefitted across the board from fear that the FOMC may present a more hawkish front at next week’s FOMC on Sept 16/17”.
“Depending on the market’s evaluation of the Fed’s commentary next week it is possible that that even on the event of a Scottish ‘no’ vote on September 18, cable would be unlikely to be able to regain all of this week’s lost ground”.
“Even if Yellen re-asserts a dovish tone next week and sparks profit-taking in long USD positions, our expectation that the USD has embarked on a recovering trend after many years of weakness suggests that cable will remain under pressure medium-term”.
“This week’s move in GBP money market rates indicates that the market has indeed pushed back its expectation of the first BoE rate hike until the spring”.
“Based on the lack of growth in the Eurozone, weak UK wage growth and the difficulties that most developed world central banks are having in promoting a recovery demand despite ultra-accommodative policies, we have been of the view that the UK market had got ahead of itself in pricing in the first UK rate hike”.
“A ‘yes’ vote in Scotland next week would likely spark an additional knee-jerk fall in the value of GBP”.