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By Jameel Ahmad, Chief Market Analyst at FXTM
Despite the Scottish referendum coming to a conclusion, gains in the Cable have been relatively controlled and contained this week. Investor appetite has yet to fully return to the GBP, with investors perhaps awaiting for Westminster to formally agree on what extra political power Scotland will be awarded, now that it has voted to stay in the United Kingdom. In the early hours of Wednesday morning, the pair began making another attempt to enter the 1.64 region but appears to have fallen short again around the 1.6408 area, which is where the Cable upside momentum also paused on Tuesday and Thursday of last week.
UK economic indicators are extremely low today and if the pair is going to move to the upside, it would require Greenback weakness. Although the USD weakened when US airstrikes in Syria were confirmed late Monday evening, these losses were relatively short-lived and by the beginning of the US session on Tuesday, the Greenback had recovered the majority of losses. If the overnight comments from US military spokesperson, John Kirby are anything to go by, the fight in the Middle East is unlikely to end anytime soon. Despite this, I don’t currently foresee the airstrikes leading to a substantial decline in the valuation of the USD. If the US Government announces that military troops will be sent to the Iraq/Syria region, then this is when the dollar will feel the most impact.
On Thursday morning, Bank of England (BoE) Governor Carney is set to speak in Wales and I expect am some sort of pick up in GBP volatility. Last week, the Bank of England finally disclosed that a UK rate rise can be expected around Spring 2015 but this has yet to be priced in the Cable. Although downside momentum in the GBPUSD accelerated when a potential Scotland “YES” vote began to fluster investors, it shouldn’t be forgotten that the Cable decline from 1.71 to 1.66 was mainly led by the BoE sending out mixed signals in regards to when it would raise rates. Once it is clear what kind of independent political power Scotland will be given, and now that investors have finally received a clear timeframe from the BoE for a rate rise, I see the potential for this pair to return to 1.70 by the end of the year.
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