British Pound Boosted by Latest Scottish Poll Indicators, Euro Dollar Rate Dominated by Bear Triangle

Meanwhile Nomura anticipates a ‘return of volatility’ across many assets with foreign exchange at its forefront, "Global markets are already starting to re-price expected risk and reward of various assets. As such, it is worth rethinking what is the best way to express strategy views.”

Exchange rates at the weekend:

The pound to US dollar exchange rate: 1 GBP converts into 1.6257 USD.
The euro to US dollar exchange rate: 1 EUR converts into 1.2948 USD
The euro to pound exchange rate: 1 EUR converts into 0.7964 GBP.

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GBP Pound: Retaining strong position as No vote grows

GBP remains steady, outperforming its G10 peers and defying the strength of the dollar. But the major events of next week will affect the strength of the US dollar and demand from European investors.

The pound to dollar has been guided by Scottish referendum polls this week. The ‘No’ campaign is now said to be leading and several UK companies have warned of relocation to London if Scotland votes ‘Yes’, providing additional support for the pound.

Demand may come from European investors as their central banks differ in stance than that of the Bank of England.

The UK therefore remains an alternative safe haven where investors can at least expect some return on their investment with the base rates being 0.5%, helping support the GBP over the medium term.

Euro: Quiet, bear triangle forms

The Euro remains quiet, ignoring France’s CPI falling to near a five-year low in August.
While the Eurozone’s industrial production figures and quarterly employment change may give sentiment a nudge, the Euro’s medium to long-term outlook remains negative based on the divergent policy outlook between the Fed and the ECB.

The Euro to US Dollar continues its downside according to Nomura who say: “If the EUR/USD closes below 1.2950, it will be the ninth consecutive lower weekly close. The longest run of consecutive falls in the 2010 euro collapse was six, and there were only five in 2008.”

Factors indicate it is a short term base, however if 1.2883 gives way to the downside it will be seen as a bearish triangle targeting 1.2740. If disappointing US retail sales figures are released the bearish sentiment may change.

US Dollar: Elements of uncertainty

The events next week will ensure an interesting week ahead: US dollar strength has been based on a re-pricing of risk, diverging central bank policy, uncertainty over Scotland and how markets will react to the launch of a hiking cycle in the US.

As the market prepares for a first rate hike from the Federal Reserve in early 2015, research from  the San Francisco Fed suggests that investors may be underestimating the time and pace of US interest rates when they begin to rise, providing fresh impetus for the dollar.

Meanwhile an upturn in the preliminary September University of Michigan consumer sentiment index could ensure the dollar’s continued momentum and recent US economic data has been more upbeat.

The FXSI (FX Sentiment Index) remained at low risk as US equities ended on a positive note and even though President Obama’s speech committed more US military operations in Syria and Iraq.