For the last two weeks, in the
aftermath of the gap down that resulted from a poll published by the “Sunday
Times” that weekend which seemed to indicate that more Scottish voters would
opt for independence, Cable, or the GBPUSD currency pair, has been in an uptrend
channel. As all movements in any instrument that contains the British pound,
and many others that do not, are made with an eye to the outcome of today’s referendum,
this can be taken as a sign that the market, on balance, now believes that the
proposal will be rejected and Scotland will remain a part of Great Britain.
A “Yes” result has always been perceived
as bad for Sterling. Apart from the loss of oil revenue to the treasury, the
sheer level of uncertainty that would surround the eighteen months that has
been designated for negotiations on the practicalities of secession in the
event of the referendum being carried would play havoc with the currency.
The tendency in the market in the last
two weeks is mirrored in the odds being given by the great
majority of bookies on the outcome.
We are out of the market while the referendum takes place as the short-term volatility has the potential to be severe. This type of situation carries unacceptable risk.
We are out of the market while the referendum takes place as the short-term volatility has the potential to be severe. This type of situation carries unacceptable risk.
A
cautious U.S. Federal Reserve
The monetary policy statement and
press conference by the Federal Open Market Committee (FOMC) in the U.S last
evening has been marked, on this occasion at least, by a sure-footed performance
by all concerned, particularly the Chair of the committee, Janet Yellen.
It is not the job of central banks to
change the value of their country’s currency. Their responsibility is, rather,
to ensure that changes that do take place happen in an orderly manner.
Therefore the Federal Reserve has to be extremely careful about the messages it
gives, either explicitly of implicitly, to market participants.
In this regard the equity markets
seem to have come more to the fore in the committee’s thinking. It is known
that there are members who believe that the stock market is not part of the “real
economy”, so a melt down here is viewed by them with something close to equanimity
(a raising of U.S. core interest rates would be bad for stocks, as much of the
buying that has occurred since the introduction of Quantitative Easing (QE) has
been with cheaply borrowed money).
Right now the Fed is being cautious
about the timing of an interest rate rise. It is still conditional upon
employment growth but there is a clear impression that the nature of job
creation, in the sense that it is difficult to balance lowly paid jobs with employment
growth and the slack in the economy that is the underutilised element of the workforce,
is a worry.
The takeaway from yesterday’s
statement seems to be that nothing will be decided in relation to the timing of
rate rises until QE is finally ended next month and the pattern of events after
that can be studied.
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