The pair commenced the week by moving to the upside and attempting to regain losses caused by the Scottish referendum the week prior.
However, the pair found stubborn resistance around the 1.6408 area and the announcement that UK Prime Minister, David Cameron, would call in parliament to vote on joining the international coalition against the Islamic State (which parliament voted anonymously in favour for) sent the pair to the low 1.62s.
News of the UK joining the international coalition has flustered investors who were only just beginning to regain confidence in the GBP/USD pair following the Scottish referendum. However, I feel it will require military troops to be deployed into the Middle East before any substantial decline in the GBP is noticed.
In the meantime, investors are still waiting for Westminster to formally define what extra political powers Scotland will be granted now that it has voted to stay within the United Kingdom. When this is confirmed, the prospects for the pair will be bullish. This Tuesday morning, it is widely expected that the UK’s second quarter GDP will be confirmed as having expanded by 3.2%. This will heighten demand for an interest rate rise, which Bank of England (BoE) Governor Carney stated only on Thursday last week was “getting closer”. The BoE are set to raise rates in Spring 2015 and this is something that hasn’t been priced into the pair yet. Once Westminster finally defines Scotland’s extra political powers, this pair looks set to rally.
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