{"id":24520,"date":"2014-09-21T09:55:30","date_gmt":"2014-09-21T16:55:30","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=24520"},"modified":"2014-09-21T09:55:30","modified_gmt":"2014-09-21T16:55:30","slug":"why-the-pound-failed-to-rally-after-the-scots-said-no-to-independence","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2014\/09\/21\/why-the-pound-failed-to-rally-after-the-scots-said-no-to-independence\/","title":{"rendered":"Why the Pound Failed to Rally After the Scots Said No to Independence"},"content":{"rendered":"

(This is an excerpt from an article I originally published on Seeking Alpha on September 21, 2014. Click here to read the entire piece<\/a>.)<\/strong><\/p>\n

The people have spoken…and so apparently have the markets. The people of Scotland voted firmly in favor staying within the United Kingdom<\/a>. In response, the British pound (FXB) sank sharply, defying some expectations that the currency would soar on a NO vote. Essentially, that rally may have already happened.<\/p>\n


\n
\"The<\/a>
The British pound has returned to its level against the U.S. dollar right before poll results suggested the YES camp had greatly improved its odds to win the Scottish referendum on independence<\/figcaption><\/figure>
\n<\/center><\/p>\n

It is not possible to know for certain what explains the pullback in the British pound, but there are several clues available for investigation. It all starts with the gap down on September 8th in the wake of poll results which suddenly suggested that the Yes campaign had much improved odds of winning<\/a>.<\/p>\n

{snip}<\/p>\n

This story is of course ex post (after the fact), and it fits what I can observe now with hindsight. {snip} However, the market’s relative comfort with the British pound was VERY evident and obvious against other major currencies I follow: the euro (FXE), the Japanese yen (FXY), and the Australian dollar (FXA). In each case, the British pound reversed its losses within days and achieved major milestones AHEAD of the referendum vote. {snip}<\/p>\n


\n
\"The<\/a>
The British pound managed to a major six-year breakout against the yen ahead of the referendum vote<\/figcaption><\/figure><\/p>\n
\"The<\/a>
The British pound pushed EUR\/GBP toward 2012 lows ahead of the vote. 2008 lows aren’t much further down.<\/figcaption><\/figure>\n

\"A<\/a>
A rare sight: from 11-month lows to 6-month highs in less than two weeks!<\/figcaption><\/figure>
\nSource for charts: FreeStockCharts.com<\/a><\/strong>
\n<\/center><\/p>\n

Sure each currency pitted against the British pound pair has its issues, but the market definitively stated with these observable moves that it was quite comfortable that the British pound was not in trouble from the results of the referendum. {snip}<\/p>\n

I do not expect the British pound to immediately resume its pre-vote rally. {snip}<\/p>\n

{snip}<\/p>\n

So now back to the election results and some lessons learned when trying to tie real-world headline\/event risk to currency trading. The market definitely had this one right in the days going into the vote: the final result was never even close or in question. {snip}<\/p>\n

{snip}<\/p>\n

Click for larger view…
\n


\n
\"A<\/a>
A decisive victory for the NO campaign on Scottish independence<\/figcaption><\/figure>
\nSource: The Telegraph<\/a><\/strong>
\n<\/center><\/p>\n

Given these results, another question to ask is how did the YES camp get over-estimated in the final two weeks? {snip}<\/p>\n

<\/p>\n
\n

Re #ScotlandIndependence<\/a> #polls<\/a>, assume most undecideds will be "No" (not evenly divided as UK pollsters think). I predict Yes-45\/No-55.<\/p>\n

— Patrick Murray (@PollsterPatrick) September 12, 2014<\/a><\/p><\/blockquote>\n