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Euro US Dollar (EUR USD) Exchange Rate Muted on Catalonia Impasse

  • Euro US Dollar Steadies to 1.1781 – US Dollar Euro Climbs to 0.8509
  • Tensions Between Spain and Catalonia Continue – Euro Strength Remains Limited
  • US Data Proves Positive – US Dollar Bolstered

The Euro US Dollar exchange rate has remained predominantly muted this morning with markets still tip-toeing around the on-going situation in Spain whilst waiting to hear what European Central Bank (ECB) Governor Mario Draghi had to say at his speech in Frankfurt.

Euro (EUR) Gains Limited on Stand-off Between Madrid and Catalonia

Euro (EUR) exchange rates have remained stunted this morning due to the impasse in negotiations between Catalonia and Madrid.

The recent letter from Catalonia leader Carles Puigdemont to Spain not been met positively, with Madrid asserting that Puigdemont did not answer ‘yes’ or ‘no’ to the question of if Catalonia has declared independence.

This means that the proposed Monday deadline for clearly proclaiming whether Catalonia is breaking away from Spain has passed, with Puigdemont instead asking for two months of dialogue and that Spanish authorities desist all ‘repression’ in Catalonia.

The situation escalated on Tuesday when Spain jailed two notable separatists.

This news further dragged on the Euro, with many investors hesitant to buy the single currency until some form of stability is re-established within Spain.

ECB President Mario Draghi’s speech did not discuss monetary policy, with Draghi instead focusing on encouraging governments to enact reforms to boost growth whilst rates are low. The Euro remained bearish as a result.

US Dollar (USD) Exchange Rates Bolstered by Robust Data Prints

Whilst the US Dollar’s recent climb has slowed this morning, it remains on strong footing following yesterday’s positive data prints and comments from Fed Chairman Janet Yellen on Sunday.

The National Association of Home Builders/Wells Fargo housing market index (NAHB), hit a five month high in October as sentiment amongst US housebuilders unexpectedly leapt.

The index climbed to a reading of 68, up from the previous month’s 64 and smashing the expectation that it would remain unchanged.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, shared his thoughts:

‘At this point we can’t be sure if this is just a rebound from the storm hit in September or the start of a renewed uptrend, perhaps triggered – or supported, at least – by increased demand from people seeking to move from the affected areas to higher ground, or less-hurricane prone areas’.

Because of the possibility that this is simply a response of the recent storms (Irma and Harvey), the market reaction has been somewhat limited, though combined with news that US industrial production inched ahead by 0.3% in September, confidence in the US economy has grown.

Fed Chair Janet Yellen expressed similar sentiment on Sunday, asserting that whilst the storms did do damage, their influence would be short-lived and likely result in a rebound.

EUR USD Forecast: Volatility Ahead on Today’s US Data

The Euro US Dollar exchange rate could come under even more pressure depending on the result of today’s US data prints, with September’s housing starts and building permits due, along with the US crude oil inventories, and the release of the Federal Reserve’s ‘Beige Book’ – also known as a summary of commentary on current economic conditions.

If this summary reflects Yellen’s positive outlook then the US Dollar could increase in demand, pushing EUR USD down even further.