Daily Currency Report – Monday 16th October

Euro drops 0.5% on Catalonia news Carles Puigdemont, leader of the Catalonia independence party, has until 10am to clarify whether, in an address to parliament, he in fact declared the region’s independence from Spain following an unauthorised referendum on October 1st in which only 43% of the electorate voted. If he says Yes, and refuses […]

16th October 2017 | Miles Eakers

Euro drops 0.5% on Catalonia news

Carles Puigdemont, leader of the Catalonia independence party, has until 10am to clarify whether, in an address to parliament, he in fact declared the region’s independence from Spain following an unauthorised referendum on October 1st in which only 43% of the electorate voted. If he says Yes, and refuses to back down by Thursday, Spain’s government will invoke Article 155 of the constitution, giving it broad powers over the Catalan administration.

In more bad news for the UK, the office for national statistics has revised its balance of payments data and shows the UK’s has dropped from a surplus of £469bn to a deficit of £22bn. This left Global banks and international bond strategists stunned by revised ONS figures showing that Britain no longer has any reserve of net foreign assets.

The news follows the office for budget responsibilities recent miscalculation last week for the UK’s productivity potential and will add further importance to the UK inflation and wage growth data this week. UK inflation data is marked for release tomorrow at 09:30 with wage growth data out the following day at the same time. The data is the last set before the next Bank of England meeting on the 2nd of November with some expecting the Central Bank to raise interest rates.

In election news from Austria, the People’s Party, led by Sebastian Kurz, was projected to win 31% of the vote, more than any other party. He is likely to form a coalition with the far-right Freedom Party, which had 27% of the vote, in an election dominated by immigration. Mr Kurz, 31, would be the European Union’s youngest prime minister.

Janet Yellen said inflation will increase in America next year, even though the slow pace of price rises is arguably the biggest economic surprise of this year. The chairman of the Federal Reserve said she sees labour-market strength as the main cause of higher consumer prices, and that the central bank will seek to keep gradually raising short-term interest rates.

Oil price have driven asset price direction overnight as news that the conflict between Iraqi and Kurdish forces escalated over the weekend in an area just south of the oil-rich city of Kirkuk. The news sent oil up by as much as 1.3% to $51.99, taking energy stocks higher with it. Gold prices were down by 0.1% to $1,302.94.

EUR/USD $1.1792 (-$0.0030)

EUR/USD is nursing a minor loss ahead of the European open after falling to a fresh daily low of $1.1788 in recent trade. Dovish remarks from ECB President Mario Draghi on Friday continue to dampen the Euro while comments from Vice President Constancio over the weekend made no mention of tightening the policy stance. The US Dollar meanwhile has begun the week with a modest bid, continuing the rebound from Friday’s dump after CPI and retail sales data were released.

GBP/USD $1.3286 (+$0.0002)

GBP/USD is flat ahead of the European open. The pair has bounced back in recent trade after touching a fresh daily low of $1.3268. Brexit headlines will be closely watched for the pound today as UK PM May and Brexit Minister Davis head to Brussels amid reports that France and Germany are to toughen their stance. The US Dollar meanwhile has begun the week with a modest bid, continuing the rebound from Friday’s dump after CPI and retail sales data were released.

USD/JPY ¥111.77 (-¥0.07)

USD/JPY is nursing a very minor loss ahead of the European open. The US Dollar has gained against most of the G10 currencies this morning but has been outshone by the Yen as safe-haven flows boosted the Japanese currency; South Korean officials have warned of another North Korean missile test while Iraqi forces have launched a major operation in Kirkuk. Also lending support was Japanese industrial production which rose +2.0% year-on-year in August.

GBP/EUR €1.1264 (+€0.0027)

GBP/EUR is higher this morning, reaching a daily high of €1.1268 overnight. Dovish remarks from ECB President Mario Draghi on Friday continue to dampen the Euro while comments from Vice President Constancio over the weekend made no mention of tightening the policy stance. Brexit headlines will also be closely watched for the pound today as UK PM May and Brexit Minister Davis head to Brussels amid reports that France and Germany are to toughen their stance.

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