Market report: Independence referendum fears halt GBP


Sterling struggled to make any significant headway against both the euro and dollar on Tuesday.

The current lack of demand could be down to next week’s Scottish parliamentary elections. Investors are acting cautiously as the Scottish National Party (SNP) remain favourites to secure a majority. The SNP will likely push for another independence referendum, volatility that won’t be kind on the pound.

This quarter, sterling has struggled to regain the momentum it had in Q1, where GBP/EUR enjoyed its strongest quarterly performance since 2015. The main contributors to that were the Bank of England (BoE) downplaying negative rates and an impressively fast vaccination programme. These driving factors have seemingly run their course, with investors now seemingly looking for fresh impetus.

This is expected to arrive in the form of economic data. Investors and analysts alike are anticipating a post-pandemic bounce for Q2 with the easing of lockdown restrictions expected to spur economic activity. Focus will then be back on the BoE for any hints on which way the bank will be taking monetary policy.


The dollar had a relatively quiet day yesterday too. Except Japanese yen (which is feeling the impact of a third covid wave), USD failed to make gains against most major currencies. Market investors are now awaiting today’s Federal Reserve monetary policy decision, although they’re not expecting any significant changes.

However, they will be paying close attention to the Federal Open Market Committee press conference and comments from Fed Chair Jerome Powell. Any comments relating to the improving economic outlook and whether improving conditions will warrant the tightening of economic policy will be of particular interest.

So far, the dollar had enjoyed a strong start to Q2  as US Treasury yields peaked. This simply reflects investors increasing bets of a US economic recovery with higher inflation which will ultimately force the Federal Reserve to tighten monetary policy.

Powell has recently reiterated his stance that the Fed remain committed to supporting the economy as much as possible whilst vowing to keep rates on hold until its 2% inflation target is consistently met. Should Powell reiterate this stance then there is an argument for dollar weakness.

Key announcements

15:00 – EUR – ECB President Lagarde speech
19:00 – USD – Fed Interest rate decision
19:00 – USD – Fed Monetary Policy Statement
19:30 – USD – FOMC Press Conference