Afternoon analysis 10.09.2014

Spanish bond yields rose due to concerns that the Scottish referendum may lead to a similar scenario in Catalonia. The euro was pushed down by increase of political uncertainty. The SNB may introduce negative interest rate. The zloty extended losses.

The Scottish independence referendum is the main risk factor for the pound. The currency was battered after surveys showed that independence supporters gained a lead for the first time in this year. As a result, the pound touched the lowest level since November 2013. The pound sell-off has been stopped by a verbal intervention of the BoE President.

Firstly, Mark Carney said that the Bank of England probably will increase interest rate in spring. His statement was somewhat surprising given the context of the Scottish referendum which may pose a variety of risks to the British economy because there is no plan for dividing public debt and tax revenues and use of the pound. Given the current circumstances, the BoE was expected to keep rates on hold to ease potential tensions. In addition, Carney said that the monetary authorities negatively assess the possibility to use the pound by independent Scotland. That helped to stem losses.

The euro under political pressure

The Spanish bonds dropped due to rumors that the Scottish referendum will ignite a similar move in Catalonia. The will to a secession of the richest region of Spain is known since a long time. Until now there was no precedence in the European Union to support a claim for independence. Nevertheless, if the Scottish vote succeeds, it will be hard to stop similar moves in the EU.

As a result, the 10-year bond yields rose to 2.3 percent from its near-record low 2 percent just three days ago. The main driver of the losses is a concern about the Scottish scenario in Catalonia.

The risk posed by the Scottish referendum spread in the eurozone. This factor imposed additional pressure on the common currency after the European Central Bank introduced new measures to spur growth and avert the risk of deflation and the Federal Reserve moved closer to the end of QE and first interest rate increase. After the growth in the morning, the euro dropped against the dollar.

SNB will follow ECB?

Thomas Moser from the Swiss National Bank said negative interest rate is possible if the risk to the EUR/CHF drop below 1.20 occurs. Moser, who took part in discussion at an academic conference, added that he couldn't say whether the SNB would announce additional measures at its coming meeting in September.

The frank fell sharply after Moser's comments on negative interest rate. The EUR/CHF rose to 1.21 from 1.2070 in the morning. As a result, the frank fell to its lowest since 20 August. The CHF/PLN dropped to 3.47.

The zloty extended losses

The zloty tried to curb losses by exploiting short growth of the common currency, but eventually it failed to succeed. In addition, the zloty was negatively influenced by expectation for the Federal Reserve to close QE and rise interest rate, what has pushed investors to sell high-yielding assets.

The Ukrainian crisis is losing its importance. After the ceasefire has been announced last Friday, the European Union eased its stance to Moscow and promised to keep additional sanctions on hold provided agreement is fulfilled. In addition, the Ukrainian president Petro Poroshenko informed that the Russian soldiers are leaving his country. Easing of the crisis didn't support the zloty though. The polish currency extended losses against its major pairs despite the frank, but gains against the Swiss currency are limited.