With the Scottish referendum fast approaching and Scottish citizens currently making their final votes; most analysts were expecting Sterling to be subject to heightened volatility. However, it seems that the majority of traders are expecting Britain to remain whole because the Pound has made steady gains against many of its most traded currency peers. The US Dollar has seemingly ended its chart-topping run after the Federal Reserve’s interest rate decision disappointed rate hike hawks.
The Pound Sterling to US Dollar exchange rate is currently trending in the region of 1.6388.
A succession of Scottish independence polls has spelled confusion having had different results and with the lead changing hands a number of times. Traders have opted for risk aversion strategies in the run up to Thursday and Sterling has been significantly soft as a result.
Wednesday’s British data didn’t do much to help reverse Sterling weakness. Unemployment did show a positive declination to 6.2% from 6.4%, but average weekly wage earnings only increased by 0.6% which is the slowest growth recorded since comparable records began. The lack of correlation between the recent inflation data and wages has put yet another barrier ahead of a bank rate increase and has eased pressure on the Bank of England.
Britain’s central bank published the minutes from the latest monetary policy meeting in which the benchmark rate was unchanged. The minutes revealed that two of the committee dissented from Governor Carney’s stance on monetary policy. Although this was not enough to overshadow the issues with wages and inflation, Sterling gained a little on renewed hopes of an earlier-than-anticipated rate increase.
The Federal Open Market Committee gathered on Wednesday to make their decision on their outlook for monetary policy. The committee opted to maintain the current low interest rate and said that future revisions are still a long way off. Federal Reserve Chair Janet Yellen stated that; ‘The labor market has yet to fully recover […] too many people who want jobs still can’t find them’. Patrick Maldari, senior investment manager at Aberdeen Asset Management said; ‘Time is running quite short, we suspect, on this ‘considerable time’ language. Specifically, we think that today’s message may be the last Fed statement to include that language, which has been included in the last several post-FOMC meeting statements’.
The Pound Sterling to US Dollar exchange rate has hit a low today of 1.6249.
Thursday’s British data has been relatively poor. Both Retail Sales and Retail Sales including Auto improved upon the previous figures but fell short of the market consensus. However, despite this poor data the Pound has made gradual gains against the US Dollar. This is likely to be attributed to the last poll on Scottish independence which gave the Unionists a lead of 53%.
US labour market data has been relatively positive on Thursday. Continuing Claims fell from the previous figure of 2,492,000 to 2,429,000 and Initial Jobless Claims declined from 316,000 to 280,000. The positive labour market results have not been able to aid the US Dollar to claw back its losses. This may be because the data somewhat contradicts Yellen’s reasoning for maintaining interest rates, and only acts to boost rate hawks.
The Pound Sterling to US Dollar exchange rate has reached a high today of 1.6409.
UPDATE
In the immediate aftermath of the Scottish referendum, which saw unionists secure a decisive victory, the GBP/USD exchange rate surged to 1.6524.
However, the pairing has since trimmed this advance by -0.35% as investors initial enthusiasm waned and the prospect of the Fed bringing forward its timeline for increasing interest rates loomed in the wake of yesterday’s impressive US jobless claims data.
Today’s US Leading Indicators index could trigger some further GBP/USD movement before the weekend.
