The thing we definitely know about the Scottish vote – the pound will react one way or another

17th September 2014

Alex Plester, senior foreign exchange broker with VFX Financial considers the implications of tomorrow’s vote in Scotland.

With only one day left before the Scots decide whether to leave the UK and go it alone, the pound took a well earned breather. A combination of inflation numbers which came in as expected and a hat-rick of polls showing the ‘No’ campaign slightly ahead has see sterling make back some losses against the majors. For those who are playing the waiting game to see if sterling plummets or flies like an eagle, today and early tomorrow will be your last chance to hedge some of that risk by partially locking some of your exposure at current exchange rate levels. The only thing for certain – the pound will react and we are expecting a bumpy ride tomorrow onwards. Click here for free no obligation quote.

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Looking ahead to today, it’s the dollar that will be in focus in currency markets as we saw the greenback hold a decline from yesterday against 10 major peers, its biggest in three months, as traders weighed whether the Federal Open Market Committee will alter the language in its policy statement later. Traders are reluctant to buy or sell the dollar until they see the FOMC outcome. The Fed concludes a two-day meeting today as officials consider the timing of interest-rate increases and whether to revamp their public guidance on the path of borrowing costs. The central bank has said since March that rates would stay low for a period after it completes a bond-buying program under its quantitative easing strategy. Policy makers in July reduced monthly bond purchases to $25 billion in a sixth consecutive $10 billion cut, on track to conclude the program by year-end. It’s still unclear as to what exactly the Fed may release, but from the dollars point of view, the continuing trend for the dollar to keep strengthening  shows no signs of abating. Even if the Fed doesn’t signal it now, they’re still talking about an exit strategy and they’re looking at raising rates at some point.” The dollar fell yesterday as Wall Street Journal reporter Jon Hilsenrath said in a Web video that he thinks Fed policy makers will maintain their pledge to keep benchmark overnight rates low for “considerable time” after the bank ends asset purchases.

A measure of foreign-exchange market volatility was near a five-month high. JPMorgan Chase & Co.’s Global FX Volatility Index was at 7.59 percent after closing at 7.65 percent on Sept. 15, the highest level since April 1.

Elsewhere, Australia’s currency weakened amid speculation over whether China is taking steps to stimulate economic growth. The People’s Bank of China is providing 500 billion yuan ($81.4 billion) of liquidity to the country’s five biggest banks. According to analysts at Westpac, “there seems to be a great deal of debate over whether that’s an attempt to stimulate the economy or just liquidity management” and recent declines in the Aussie “are very much driven by a growing view that there has been no substantive change in Chinese monetary policy,”

New Zealand’s dollar fell against most of its 16 major peers after Westpac said Fonterra will reduce its payment forecast to NZ$5.30 ($4.33) per kilogram from its current estimate of NZ$6 at an expected review next week.

Alex Plester is a senior foreign exchange broker with City firm VFX Financial PLC. Working in the deliverable currency markets for the last 12 years, he has been helping clients save money on converting currency by showing them an alternative route which realises substantial savings on the exchange rate as well as fees. He see’s building relationships with clients as key when dealing with converting currencies and making overseas payments. You can find out more including free advice on how to move funds internationally and free currency quotes at: www.vfxplc.com.

 

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