Exchange Rates Today: Pound Bearish despite Positive Services, Euro Fluctuates, US Dollar Softens
Pound Sterling (GBP)
Tuesday was a confusing day for those invested in Sterling as UK construction was seen to have the fastest growth in seven months, but a government poll showed that there is an increased likelihood of Scotland voting for independence in two weeks time.
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The positive construction data would have been ample reason for investors to stick with the Pound, but the foreboding independence poll was too much to handle and Sterling softened in response.
The latest YouGov poll showed the lead that the unionists held over the nationalists decreased from 22% to just 6% in the last month.
The diminished gap was surprising and has refocused traders to the threat of the breakup of the 307-year-old currency union.
With the contentious issues such as the use of Sterling, national debt, Britain’s nuclear submarine base and the North Sea oil reserves yet to be resolved, Sterling could see a depreciation by around 3-5% if Scotland were to gain independence.
The cost to insure against fluctuation in the value of Sterling rose to the highest in three years on Tuesday, which reflects the high level of anxiety surrounding the vote for Scottish independence.
The fact British construction printed at the highest level since January was not enough to shrug off waning sentiment towards the currency and the Pound depreciated by around -0.75 cents against the Euro.
Despite the fact that a total of seven European data publications were negatively revised on Wednesday morning, the Pound to Euro exchange rate is still extremely soft. This suggests that the threat of an independent Scotland is still dominating investor focus.
US Dollar (USD)
The Pound Sterling to US Dollar exchange rate plummeted to a 5-month low on Tuesday, falling by over a cent, as the threat of Scottish independence continued to overshadow the positive UK construction data.
Sterling fell below one support level on Tuesday morning as a result of the tight YouGov poll, and then crashed through another support level in the afternoon after the US manufacturing data was much better than anticipated.
The ISM Manufacturing Index rose from 57.1 to a 3-year high of 59.0, completely eclipsing the forecast figure of 57.0.
The highest new orders number for 10-years was a significant contribution to the positive index, and is an indication that America could post another impressive growth score in the third quarter.
Canadian Dollar (CAD)
The Pound to Canadian Dollar exchange rate softened by around a third of a cent on Tuesday as a result of the anxiety surrounding the Scottish referendum.
Tuesday’s Canadian Manufacturing PMI showed positive growth at 54.8 but the data had minimal impact on ‘Loonie’ (CAD) movement ahead of Wednesday’s Bank of Canada interest rate decision.
The majority of economists agree that it will be very unlikely that the Bank of Canada will opt to change the current bank rate at 1.00%.
With the ongoing tension between Russian and Ukraine escalating a renewed sanction battle could rear its head.
This could have a beneficial impact on the Canadian Dollar as the prospect that Canada will replace Russia as the supplier of European oil increases. This is obviously speculative as the direction of the Russia-Ukraine feud is far from being established.
Wednesday has seen Ukrainian Petro Poroshenko announce to the world that there will be a permanent ceasefire, but so far this has only been met with denial from the Russian end.
Australian Dollar (AUD)
Tuesday morning saw the Pound to Australian Dollar exchange rate rally by over half a cent following an announcement from the Reserve Bank of Australia that they intend to hold the current interest rate for the foreseeable future.
RBA Governor Glenn Stevens suggested that an overvaluation of the ‘Aussie’ (AUD) is holding back economic progress and the Australian Dollar softened as a result.
The early Sterling gains against the ‘Aussie’ were short-lived, however, after traders digested the narrow gap between the votes for Scottish independence.
New Zealand Dollar (NZD)
The New Zealand Dollar was the only major currency to have declined versus the Pound on Tuesday as another fall in dairy prices hurt the ‘Kiwi’ (NZD).
At the most recent Global Dairy Auction milk prices were reported to have fallen by -4.3%.
This had an almost instant effect on the Pound to New Zealand Dollar exchange rate which rallied by over 0.6 cents.
South African Rand (ZAR)
The Pound Sterling to South African Rand exchange rate has continued to soften after Tuesday’s YouGov poll concerning Scottish Independence continues to hurt Sterling.
A positive UK services score on Wednesday hasn’t been enough to claw back Sterling losses.