Sterling jumped overnight as Scotland spurned independence in a historic referendum that had threatened to rip the UK apart. A vote for the 307-year union is a relief for millions of Britons including PM David Cameron, whose job was on the line. With 31 of 32 constituencies declared, unionists had won 55% of the vote while separatists were on 45%. Though the nationalists won Scotland’s biggest city, Glasgow, they failed to live up to opinion poll surveys before the vote which forecast that the United Kingdom’s fate was balanced on a knife edge. Nationalist leader Alex Salmond conceded defeat but warned British politicians in London that they must respect their last minute promise of more powers for Scotland. Sterling strengthened sharply against the dollar and the euro while share prices looked set to open higher in a relief rally.
Banks snub ECB offer of cheap finance
Yesterday’s TLTRO (Targeted Long Term Refinancing operations) uptake disappointed with euro-zone banks only taking EUR 82.6bn. This suggests that the TLTRO will be less successful in boosting the balance sheet and the ECB will thus have to look at other sources – namely full-scale quantitative easing which would likely weigh further on the euro.
The global FX markets will digest the result from the Scottish referendum where independence was rejected. With a victory for the ‘No’ campaign, a significant risk factor for sterling has been removed and the currency has rallied accordingly. While the pound should continue to trade on a positive note today, the risk premium priced into sterling prior to the referendum has now been largely removed.
Speculation has increased over whether France will be downgraded by Moody’s today. France has been on negative outlook since 2012. Recently, France has announced that it will not be able to meet its target for the budget deficit this year and next year and has furthermore revised down its growth forecast for 2014.
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