Scotland: “Buy the rumour, sell the news” | Now business and usual for the Bank of England

Yesterday, while polling in the Scottish independence referendum was under way but also in the knowledge that both the bookies (strongly) and the opinion polls (marginally) were of the view that the proposition would be defeated, the Pound sterling traded aggressively to the upside. It was always believed that a vote for cessation from Great Britain would be bad for the British currency. It was already considerably oversold in the previous sessions, largely, it was thought, because of uncertainty brought on by the upcoming plebiscite.

Now, though, as the result is in and there will be no independence this time round for the land of Burns, Scott and Robert Louis Stevenson, the Pound is in retreat, at least as of this writing (see chart above). It would seem that those who had decided to bet on the result using the Forex market instead of the High Street bookmakers are taking their winnings off the table: a classic case of Buying the Rumour and Selling the News. This comes about because of profit taking after a run-up due to any set of expectations, and is very common in the equity markets. There could, however, be a further relief rally when Forex traders in the U.S. get to their desks later in the global day.

Now business and usual for the Bank of England

After the sighs of relief that must be emanating from the corridors of power in England, the governor and board of the Bank of England can get back to the business of guiding expectations of their own, the most important of which must be on decisions regarding core interest rates.

It is understood that Mark Carney, BoE chief, broke off his engagement with the G20 meeting in Australia in order to be on hand at headquarters in case a contingency plan had to be triggered in the event of the alternative outcome. Now he can relax, at least for the weekend. Then it will be business as usual and all eyes in Forex will be on the next moves in rates, and all the factors that are likely to affect them.

The Bank of England has announced that it will not be making any statement on the outcome of the referendum.