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Sterling's Scotland-related gains vs dollar evaporate
Sterling fell back against the dollar on Friday to stand lower on the day, handing back all of its gains since the first signs overnight that Scotland was voting "No" to splitting off from the United Kingdom.
The pound fell past $1.64 to trade at a day's low of $1.6360 , down 0.2 percent on the day and off a two-week high of $1.6525 struck in Asia.
Traders said much of the positive effect of the Scots' vote had already been priced in by speculation late on Thursday and that the pound was likely to struggle against the dollar given the Federal Reserve was inching towards tightening interest rates.
The Scottish vote also raises new constitutional problems for Britain, adding to uncertainty about whether UK growth prospects justify expectations of a rise in interest rates from the Bank of England by early next year.
"Important from a UK economic perspective, one should note a Scottish 'No' is not a vote for the status quo," said Adam Myers, head of EMEA G-10 currency strategy at Credit Agricole.
"As such some devolution uncertainty will remain, distracting investors' attention from superior UK growth relative to Europe and thus mitigating some of our forecasts for sterling gains somewhat during the fourth quarter."
Against the euro, sterling was still around 0.2 percent firmer at 78.67 pence per euro.
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GBP/USD falls as investors take profits on Scotland vote
The pound fell against the dollar on Friday after investors locked in gains from Scotland's decision to stay in the U.K. and sold the currency for profits.
In U.S. trading on Friday, GBP/USD was down 0.47% at 1.6320, up from a session low of 1.6304 and off a high of 1.6525.
Cable was likely to find support at 1.6244, Thursday's low, and resistance at 1.6644, the high from Sept. 1.
The pound strengthened earlier after Scottish voters rejected a referendum on independence and opted to remain part of the United Kingdom.
A record turnout of voters delivered a clear victory for the No campaign on Thursday, with 55% of Scottish voters rejecting independence and 45% backing it.
The pound later fell against the greenback, as many investors had already priced a No victory and sold the currency for profits.
The dollar, meanwhile, firmed on expectations for monetary policy to tighten next year.
Earlier this week, the Federal Reserve suggested it plans to close its bond-buying stimulus program next month and hike interest rates in 2015.
While some time will pass between those two policy moves, rate hikes could come quickly once the U.S. central bank moves to tighten, investors have concluded, which bolstered the greenback.
Elsewhere, sterling was up against the euro, with EUR/GBP down 0.14% at 0.7871, and down against the yen, with GBP/JPY down 0.30% at 177.68.
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GBP/USD forecast for the week of September 22, 2014
The GBP/USD pair tried to rally during the course of the week, and with the Scottish Independence Vote coming in a solid “no”, the British pound went just above the 1.65 level during the week. However, we gave back almost all of the gains and formed one of the ugliest shooting stars that we’ve seen in some time. The hammer during the previous week of course offer support and it was based upon the 50% Fibonacci retracement level from the larger move as well, so we think this means is that the market is going to continue to bounce around between the 1.60 level on the bottom, and the 1.65 level on the top.
The marketplace will more than likely be more of the shorter-term variety, but we do recognize that there is a massive amount of support between the 1.59 and the 1.60 level below. That supportive area should continue to offer plenty of buying pressure, so we believe that this market really isn’t going to break down too much from here although the shooting star is without a doubt very bearish at the moment.
The British pound might be a little bit of a misnomer when it comes to the US dollar, simply because there is the possibility of the Bank of England tightening fairly soon as well, and therefore the Federal Reserve cutting back on quantitative easing won’t have as much of an effect against the British pound as it does some other currencies, such as the Japanese yen. Because of that, we believe that this market won’t be as bearish as other US dollar related pairs.
If we do break down below the 1.59 handle, we will more than likely head to the 1.57 level, and then the 1.55 handle next. On the other hand, if we break above the top of the 1.65 level, this market should then head to the 1.68 handle, and then the 1.70 level. In the meantime though, we don’t expect any event to happen and we anticipate solid consolidation between 1.60 and 1.65 in the meantime.
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GBP/USD weekly outlook: September 22 - 26
The pound turned lower against the broadly stronger dollar on Friday, coming off the two-week highs hit earlier in the session after voters in Scotland’s independence referendum elected to remain inside the United Kingdom.
GBP/USD was down 0.68% to 1.6284 in late trade, reversing a rally which propelled it to two-week highs of 1.6523.
Sterling also trimmed gains against the euro, with EUR/GBP at 0.7878 in late trade, off the two year lows of 0.7809 struck earlier in the session.
The pound was initially boosted after voters in Scotland chose to stay in the U.K. by a significant margin in a independence referendum, defying opinion polls which had indicated that the final result would be too close to call.
A total of 55% of voters voted to reject independence, while 45% voted in favor of it.
Sterling slumped to 10-month lows against the dollar earlier this month as uncertainty over the Scottish referendum rattled financial markets.
With the referendum issue out of the way, investors began to turn their attention back towards the Bank of England’s monetary policy stance.
Sterling rallied in the early part of the year on the back of expectations that the deepening recovery in the U.K. would prompt the BoE to raise interest rates ahead of other central banks.
However, the dollar has rallied in the past two months as economic data indicated that the U.S. recovery is progressing strongly, while the pace of the recovery in the U.K. appeared to be moderating.
On Wednesday the Federal Reserve offered fresh guidance on its plans to raise interest rates, outlining in more detail how it will start to raise short term interest rates when the time comes.
The Fed statement reiterated that it expects rates to remain on hold for a \"considerable time\", after its bond purchasing program ends, but it outlined in more detail how it will start to raise short term interest rates when the time comes.
The Fed also cut its monthly asset purchase program by another $10 billion, keeping the program on track to finish next month.
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1.6091 buy
Pound Gains as Focus Turns to Improving Economy; Dollar Weakens
The pound strengthened before Bank of England Governor Mark Carney speaks this week as attention returns to the economic outlook after Scotland voted Sept. 18 to stay in the United Kingdom. The dollar fell versus the yen.
The U.K. currency gained versus all of 31 major counterparts as futures signaled rising prospects the Bank of England will increase borrowing costs next year. New Zealand’s dollar rose against developed-market peers after Prime Minister John Key won a record election victory on the weekend. The euro climbed from a 14-month low before European Central Bank President Mario Draghi speaks today.
“With the vote now done and dusted, it’s going to offer sterling a chance to actually trade with the fundamentals,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “We are still preferring to express a constructive sterling view versus the likes of euro.”
Sterling gained 0.4 percent to $1.6348 at 6:50 a.m. in London after advancing 0.1 percent last week. The U.K. currency climbed 0.1 percent to 78.68 pence per euro. RBC predicts the pound will strengthen to 75 pence by the first quarter of 2015, Trinh said.
The euro appreciated 0.3 percent to $1.2863 after falling to $1.2826 earlier today, the weakest level since July 2013. The shared currency added 0.1 percent to 139.97 yen. The dollar weakened 0.2 percent to 108.81 yen.
Carney is due to speak in Wales on Sept. 25. U.K. policy makers next meet on Oct. 9 after maintaining the benchmark rate at 0.5 percent this month.
The implied yield on three-month sterling interest-rate futures contracts expiring June 2015 rose to 1.11 percent on Sept. 19, the highest since Aug. 25.
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GBP/USD edges higher but gains seen limited
The pound edged higher against the U.S. dollar on Monday, but gains were expected to remain limited as demand for the greenback remained supported by expectations for an early rate hike by the Federal Reserve.
GBP/USD hit 1.6366 during European morning trade, the session high; the pair subsequently consolidated at 1.6331, rising 0.28%.
Cable was likely to find support at 1.6244, the low of September 18 and resistance at 1.6408, the high of September 18.
The dollar remained supported as signs that the economic recovery is making solid progress fuelled expectations that the Fed will hike interest rates sooner than markets are expecting.
Last week, the Fed offered fresh guidance on its plans to raise interest rates, outlining in more detail how it will start to raise short term interest rates when the time comes.
The pound rose to two-week highs against the greenback on Friday after voters in Scotland chose to stay in the U.K. by a significant margin in a independence referendum, defying opinion polls which had indicated that the final result would be too close to call.
A total of 55% of voters voted to reject independence, while 45% voted in favor of it.
The pound's rally was short lived however as investors began to turn their attention back towards the Bank of England’s monetary policy stance, with the referendum issue out of the way.
Sterling was higher against the euro, with EUR/GBP slipping 0.14% to 0.7866.
Later in the day, the U.S. was to release data on existing home sales.
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Pound erases losses as dollar rally stalls
The pound erased losses against the dollar on Tuesday as the greenback took a breather following its recent run higher, while elsewhere sterling was lower against the euro.
GBP/USD edged up 0.08% to 1.6372, coming off the lows of 1.6303 hit earlier in the session.
Cable was likely to find support at 1.6286, Monday’s low and resistance at around 1.6410.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.21% to 84.62, after rising to peaks of 84.86 on Monday, the highest since July 2010.
The dollar has rallied in recent months, boosted by expectations that the strengthening recovery in the U.S. would prompt the Federal Reserve to raise interest rates sooner than markets expect.
Sterling remained supported as investor focus returned to the outlook for U.K. monetary policy in the wake of last Thursday’s Scottish independence referendum.
But the pound struggled to build on gains after data on Tuesday showed that U.K. public sector borrowing increased from a year earlier in August.
The Office for National Statistics reported that public sector net borrowing, excluding public sector banks, was £11.6 billion in August 2014, an increase of £700 million compared with August 2013.
A separate report showed that U.K. mortgage approvals fell unexpectedly in August, but the underlying trend remained stable.
The number of mortgage approvals fell to 41,588 in August from 42,715 in July the British Bankers' Association said. Economists had expected the number of approvals to rise to 42,900.
Elsewhere, the pound was slightly lower against the euro, with EUR/GBP rising 0.15% to 0.7864, remaining supported above the two-year lows of 0.7809 struck last Thursday.
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GBP/USD Rebounds On Strong Trend
GBP/USD has rebounded significantly after hitting nearly a ten-month low of 1.6050 two weeks ago.
The rebound attempted a breach of the 1.6500 resistance area last week, but was unable to hold above that level before quickly retreating.
Despite the current rebound, the trend bias for GBP/USD remains strongly bearish in line with the new downtrend that began in earnest after the retreat from the mid-July multi-year high of 1.7190.
Lending to this bearish bias is the fact that the 50-day moving average has recently crossed decisively below the 200-day moving average, a major bearish technical event that has not occurred since February of 2013.
If the currency pair is able to re-break below the key 1.6300 level, this bearish bias will have been further strengthened. In that event, GBP/USD should once again target the 1.6000 psychological support level, which it came just short of hitting two weeks ago. Any break below 1.6000 should be followed further to the downside by the 1.5900 and then 1.5750 support targets.
To the upside, major resistance continues to reside around the noted 1.6500 area.
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