Scottish referendum concerns weigh on Sterling ahead of Trump speech

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28 February 2017


Sterling declined to its weakest position against the US Dollar in nearly two weeks on Monday with concerns about a possible second referendum on Scottish independence sending the currency sharply lower during Asian trading.

report from the Times newspaper over the weekend claimed that senior UK government sources are now voicing serious concerns that Scottish First Minister Nicola Sturgeon will use the triggering of Article 50 to demand another independence vote. Scotland resoundingly voted to remain within the European Union last June. While a vote would unlikely be held before 2018, it’s been reported that some politicians are already pressing for a referendum to be announced within the next few weeks, talk of which is unlikely to provide much upside to the Pound over the next few days.

Meanwhile, the Euro rallied against the Dollar yesterday ahead of Donald Trump’s much anticipated appearance in front of Congress overnight on Tuesday. Investors are, on the whole, not expecting too many details on his economic plans. Treasury Secretary Steven Mnuchin claimed on Sunday that the President would use his appearance this week to preview “some” elements of his sweeping tax cuts. The prospects of lower taxes and increased spending in the US caused the Dollar to surge to its strongest position in trade weighted terms in 14 years at the beginning of 2017.

Investors largely overlooked another set of comments from a Federal Reserve member that added to the stream of hawkish rhetoric out of the US Central bank. Speaking in Oklahoma, Dallas Federal Reserve Bank President Robert Kaplan voiced support for a sooner rather than later interest rate hike in the US, with rates to be raised “a few times” in 2017.

Major currencies in detail


Despite falling sharply during Asian trading, the Pound rose 0.5% against the US Dollar during the London session on Monday, recovering some ground lost amid concerns over a possible second Scottish referendum in three years.

While the recent Scottish independence vote in late-2014 was comfortably rejected by a ten point margin, reports over the weekend suggest that some members of the Scottish government are confident a motion should be passed should Theresa May follow through with her pledge of a ‘hard Brexit’. News on the likelihood of a second referendum are likely to be key for the Pound in the coming days.

With no economic data releases out of the UK today, attention will turn to Wednesday’s manufacturing PMI for February.


Broad US Dollar weakness and an impressive set of confidence indices out of the Eurozone sent the Euro 0.5% higher against the greenback yesterday.

Eurozone industrial and business confidence both came in above expectations. The latest business confidence index from the European Commission rose above forecast to 0.82 from 0.76, its highest level since the global financial crisis, while the industrial confidence index increased to 1.3 from 0.8. The pick-up in business sentiment is broadly consistent with the general improvement in economic conditions in the Euro-area that has seen rising inflation and improvements in services and manufacturing output.

Preliminary inflation data in Italy and France this morning could give us a decent idea about the strength of Thursday’s Euro-wide CPI numbers.


Concerns about a lack of clarity from Donald Trump over future tax plans later this week sent the US Dollar index 0.4% lower on Monday.

Economic news out of the US yesterday was fairly mixed, although attention was firmly on expectations for Donald Trump’s speech. Durable goods orders, the sale of goods intended to last more than three years, increased 1.8% in January, broadly in line with consensus. Demand for durable goods has shown an impressive rebound in recent months off the back of improvements in global economic conditions and optimism about corporate tax reforms under the Trump administration.

Fourth quarter GDP numbers will be released at 13:30 UK time. Consumer confidence is also expected to show a modest decline for February when released at 15:00 UK time.