In the shadow of the vote
The Scottish referendum is now behind us, but its implications are still rippling through the political world. In the UK, there will be a considerable shift of power away from Parliament to Scotland and, one presumes, Wales and Northern Ireland as well. In which case, England is likely to demand a measure of self-rule, too. Over the long term, that might make the UK economy more responsive and more competitive. But in the short term, it’s likely to boost the UK Independence Party, the right-wing isolationist par
ty that is forcing the Conservatives to become more anti-Europe. Thoughts like that may be one reason why GBP has lost most of the gains that it made following the announcement of the Scottish vote.
The effects of the Scottish referendum on the UK will only become clear over the longer term. The more immediate effect is on Catalonia and Spain. The day after Scotland voted, the Catalonian Parliament overwhelmingly approved a measure to give their president the power to schedule a non-binding vote on independence, which he reportedly will do in the next few days. The vote, if it takes place, is widely expected on Nov. 9th. Spain’s Constitutional Court has said it will immediately review the matter. If, as expected, it finds the referendum to be unconstitutional, it has the authority to suspend the vote. That’s when the drama would begin. This is a possible EUR-negative that we have to be aware of. Unlike Scotland, which accounts for less than 10% of the UK GDP, Catalonia is arguably Spain’s richest region, highly industrialized and contributes nearly 20% of the country’s tax revenue.
Elsewhere, the focus is once again on central banks after last week’s updated forecasts from the FOMC. With the US in the fore on the tightening schedule, we would expect the USD to remain well supported.