Sterling suffers post-Independence vote hangover
The majority of Scottish voters voted against independence from the UK last Thursday, with results reported early on Friday morning. The hangover from the Scottish Independence vote saw sterling fall away throughout trading on Friday after hitting a two-year high against the euro, and the highest levels against the US dollar in two weeks. This advance against the US dollar was soon wiped out as investor focus fell back on UK economic fundamentals.
Following the turmoil seen in the markets due to the independence referendum and Bank of England releases, the week ahead looks to be much quieter with the release of only a small volume of UK economic data. The first data set from the UK is released on Tuesday in the form of mortgage approvals from the British Bankers Association. Although this has generally a muted market impact, it does give an overview of the number of buyers entering the housing market. Further housing data will be seen on Thursday, as Nationwide release their report on housing inflation. Having increased throughout August, investors will look for further growth in this sector. With no major data from the UK this week, most movement is likely to be driven by events elsewhere as well as seeing further corrections to the markets following the Scottish referendum.
ECB policies will put the euro under pressure
Following the results of the Scottish vote on independence on Friday we saw the euro eliminate all gains it had achieved the previous week, dropping back to two-year lows against sterling and 14-month lows against the US dollar. The outlook seems increasingly bleak now for the single currency, as its two most significant peers look to be strengthening further.
Against sterling, the medium-term upside is difficult to predict, but a few forecasters are suggesting we could push through 1.30 before 2015. Eyes will be on this afternoon’s speech from European Central Bank Governor (ECB) Mario Draghi. Traders will be looking for hints from Draghi surrounding any plans for quantitative easing, with bonds and asset-back securities purchases rumoured, given the poor uptake by the banks of the ECB’s cheap loans last week. We also have a raft of Purchasing Manager Indices (PMI) for the Eurozone and individuals countries released this week which will highlight that Eurozone is just about in expansion mode although individual countries, such as France, the PMI will show that their economies are not growing. Later in the week we have manufacturing industry figures from France and Germany, as well as economic health figures from Germany on Wednesday.
US Dollar still king of the castle
The US dollar had a positive day on Friday, thanks to the long -term outlook over interest rate rises and the approaching end of quantitative easing. Despite a lack of data, the dollar strengthened against the majority of its major partners, setting itself up for the longest run of gains since 1967. With continued reaction to the Federal Reserve raising their funds estimate for the end of 2015, and the indication that when rates start to rise they should expect to do so steadily towards 3% by the end of 2016, the dollar closed out a tenth consecutive week of gains.
This week will look to continue this trend, starting slowly, though, with just existing home sales due alongside words from one member of the Federal Open Market Committee (FOMC). Tomorrow sees no data from stateside, although two more members will be speaking, before mid-week brings the new home sales figure. Thursday looks set to be the day of highest importance, with both the core durable goods orders and the unemployment claims due. With the Federal Reserve’s view that interest rate rises will be data led, these will be of particular importance, before some mildly important consumer sentiment closes out the week.
Inflation up in Canada
The end of last week brought good news for the Canadian dollar as it traded at a two-week high against its U.S counterpart on Friday. Demand for the loonie was boosted due to higher-than-expected inflation data coming out from Canada on Friday. The official statistics stated that Canadian core consumer price inflation rose 0.5% last month. Expectations had been for a 0.2% gain following on from July’s 0.1% fall. However, this did not last for the whole of Friday as the Canadian dollar weakened against the US dollar later in the day.
Friday also saw the Kenyan shilling make its first five-day advance against the US dollar thus ending more than six years of weekly losses for the shilling.