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Lower Euro to US Dollar Trading follows Inconclusive Catalonian Update

The Euro has firmed against the US Dollar on Monday’s afternoon session, rising to an exchange rate of 1.1809.

This improvement has come despite continued pressure from Catalonia, and no end in sight. Since this morning’s deadline expired, Catalonian President Carles Puigdemont has been given an extension of three days.

It remains to be seen what will happen if Puigdemont remains ambiguous about independence at the end of the new deadline, with the threat of Article 155 still hanging over Catalonia.

In the event that executive rule is imposed by the Spanish government, the Euro could crash because of the potentially violent reaction to this in Barcelona.

(First published October 16th, 2017)

The Euro has dropped by -0.3% against the US Dollar today, owing to ongoing troubles in the Spanish region of Catalonia.

  • EUR USD rate drops to 1.1786 – USD EUR trades up at 0.8482
  • Euro slides on Catalonian concerns – Eurozone trade stats also disappoint
  • US Dollar appreciates after weekend’s Yellen speech – Odds on for December rate hike
  • Euro may rise on inflation stats – USD loss possible on Fed caution

US economic news has concerned the odds of a Federal Reserve interest rate hike in December, which remains a distinct possibility.

Catalonian Problems remain Limiting Factor on Euro Today

Tensions in Catalonia have shown no signs of abating today, resulting in a consistent drag on the Euro.

A deadline has recently passed, before which Catalonian President Carles Puigdemont was supposed to clarify his position on regional independence.

Puigdemont has sent a letter to Prime Minister Mariano Rajoy, but this has not actually confirmed or denied intentions on independence.

This has raised the alarming prospect of the region being put under national administration, which could come if the Spanish government triggers Article 155.

Eurozone data has been similarly concerning today, showing a greater-than-expected decline in the trade surplus during August.

Higher Chances of December Rate Hike bring US Dollar (USD) Advance

Events over the weekend have worked in the US Dollar’s favour, triggering a 0.3% advance against the Euro.

The US Dollar has performed well against other currency peers in addition, due to prolonged trader optimism.

On Sunday, Federal Reserve Chair Janet Yellen gave a positive outlook on the US economy, which led some economists to see a December interest rate hike as all but assured.

Yellen was supportive the US economy despite recent disruption from storms, saying;

‘Economic activity in the United States has been growing moderately so far this year, and the labour market has continued to strengthen.

While the effects of the hurricanes on the US economy are quite noticeable in the short term, history suggests that the longer-term effects will be modest and that aggregate economic activity will recover quickly’.

On the difficult subject of inflation growth, Yellen was similarly positive;

‘My best guess is that these soft readings will not persist, and with the ongoing strengthening of labour markets, I expect inflation to move higher next year. Most of my colleagues on the Federal Open Market Committee (FOMC) agree’.

German Confidence Stats remain High-Impact Source of Euro Movement

The next forces acting on the Euro will be Tuesday morning’s inflation and confidence stats.

On the month, expectations are for a rise in Eurozone inflation, but a slight decline in the core annual figure.

The ‘normal’ annual figure is the most important, but at the time of writing the figure was not expected to change from 1.5%.

If this inflation measure does rise then the Euro could appreciate, as it would put inflation closer to the European Central Bank (ECB) target of 2%.

The other notable news, looking at German confidence, is also expected to be supportive.

On the month in October, expectations are for a rise from 17 points to 20, along with a better perception of the current economic conditions.

Upcoming US news will include a Fed speech early on Tuesday morning, which may devalue the USD.

This is because the speaker will be Neel Kashkari, a policymaker who has long been considered a dovish influence in the Fed.

Any signs that a December interest rate hike might not be possible could lead to the US Dollar losing ground against the Euro.

Current Interbank EUR USD Exchange Rates

At the time of writing, the Euro to US Dollar (EUR USD) exchange rate was trading at 1.1786 and the US Dollar to Euro (USD EUR) exchange rate was trading at 0.8482.