Pound gains on Scottish referendum news
What movement have we seen in the currency market?
After a pretty dismal five days of trading last week, the pound spent Monday on a much stronger footing. The GBP/EUR exchange rate advanced 0.6% (hitting a high of 1.1474) while GBP/USD rallied to 1.2251.
Although the pound’s gains against the Australian dollar were less impressive, it did also rise by over 0.4% against both the New Zealand dollar and Canadian dollar.
So, what happened?
News from Scotland was the main driver of pound gains at the start of the week. Sterling initially fluctuated after Scotland’s First Minister Nicola Sturgeon reiterated her determination to push for another independence referendum. But the pound was able to skip higher when Sturgeon intimated that the referendum wouldn’t be held until late 2018 at the earliest.
By this point in time the UK’s estimated two-year Brexit negotiations could be either complete or entering their final stage, so an independence vote should be less destabilising for the UK economy.
What should you be looking out for?
Influential UK data is in short supply again today, with the next important economic release being Wednesday’s employment numbers.
We had also thought we might see the activation of Article 50 in the first half of this week, but it seems that won’t be the case. Although the trigger date is now more likely to be later in the month, the event might not inspire the level of pound movement previously expected.
According to The Financial Times; ‘It has long been regarded as likely to be a significant market-moving event, but […] analysts now expect the moment itself to have only a modest impact on sterling. Indeed the pound has begun this week with a rise above $1.22 and also gained 0.5 per cent versus the euro. This is partly because investors are no longer in denial about Brexit, and have been pricing in the reality of the coming divorce.’
However, there’s still plenty of potentially market-moving news to watch out for this week – including UK job data, the Dutch election, the Fed interest rate decision, and the Bank of England’s (BoE) policy meeting.
On the calendar today we have final German inflation data, the Eurozone’s industrial production numbers and the ZEW economic sentiment surveys. Strong results here could see the pound reverse its recent gains against the euro.
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