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Cable rattled by domestic uncertainty
The idea of another Scottish independence referendum is having a surprisingly broad impact on currency markets with Sterling rattled and the Yen even finding some safe haven support. However this may prove to be little more than a side-show, with concern mounting over the length of time it’s taking the Trump administration to come up with any meaningful stimulus or taxation policies. Not only is this dragging on the dollar, but it could prove to be the catalyst for killing off the equity market rally, too. Dow futures show the index floundering around last week’s highs and with valuations so inflated, a wholesale reversal to knock some froth out of the market would be of little surprise.
The Traders’ View
Our prop desk is shorting assorted sterling crosses and retains is scepticism over the equity rally with limited short DAX and SPX positions being added overnight.
Fundamentals – Cable rattled by domestic uncertainty       
The Pound has lost ground in the first few hours of the week’s trade with GBP/USD and EUR/GBP both posting notable swings. There’s little in the way of fundamental data to support the move although some are attributing the swing to the idea that another Scottish independence referendum could be on the cards. Given the pushback we’ve seen already from the rest of the European Union over allowing such a move – it would set an uncomfortable precedent for other regions seeking independence – and also research showing that many of those who voted for independence in 2014 would now reject the idea, pricing this idea in too aggressively may seem rather premature. However, with little UK economic data on the table today, recovering the losses in the short term could prove challenging.
USD/JPY briefly touched 112 during the Asian session with the Yen picking up some credit for its safe haven status ahead of the aforementioned Scottish independence referendum, but the bout of dollar weakness came to an abrupt end in the wake of news that the Bank of Japan had been undertaking another round of government issued bond buying during the session. We do however have some key economic releases due from Japan later in the day with January’s Retail Sales and Industrial Production prints due at 11.50pm GMT. The potential here is that given the currency’s safe haven pull, anything that comes in even just in line with expectations could be sufficient to extend support for the Yen.
Dollar crosses in general are struggling somewhat, with the market losing patience over Donald Trump’s lack of action both in terms of stimulus measures for the economy and declaring the radical tax overhaul that had been promised. On top of this we have the chances of a March rate hike receding seemingly by the day, although a flurry of US economic data that’s scheduled for later in the session could initiate something of a turn around here. January’s Durable Goods Orders at 1.30pm GMT will be the key number to watch and a healthy tick higher is forecast here. If this is delivered then it could be sufficient to reignite some enthusiasm for the greenback that has been rather lacking in recent days. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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