EUR USD Exchange Rate Drops after Troubling Weekend from Spanish Vote

October 2, 2017 - Written by Ben Hughes

STORY LINK EUR USD Exchange Rate Drops after Troubling Weekend from Spanish Vote

The previous week saw the Euro progressively worsen against the US Dollar. Although the pairing opened in the region of 1.1929 on Monday, it ultimately closed down at 1.1815 on Friday.

Aftermath of Catalan Vote Leaves Difficult Situation for Euro Traders

After an attempt at exercising democracy turned nasty over the weekend, the Euro has been an unappealing currency.

The main cause of the Euro to US Dollar decline has been the troubling attempt at a Catalan independence vote.

Voters turned out in the region to try and vote in an independence referendum, which had been classified as illegal beforehand by the Spanish courts.

Showing how strongly they opposed this action, the Spanish government sent in police to arrest voters, raid polling stations and confiscate ballot boxes.

In spite of Government efforts, however, regional government spokesman Jordi Turull stated that 90% of voters had supported independence.

Speaking after the turmoil, Spanish Prime Minister Mariano Rajoy declared;

‘Today there has not been a self-determination referendum in Catalonia. The rule of law remains in force with all its strength. We are the government of Spain and I am the head of the government of Spain and I accepted my responsibility.

We have acted, as I have said from the beginning, according to the law and only according to the law. And we have shown that our democratic state has the resources to defend itself from an attack as serious as the one that was perpetrated with this illegal referendum’.

It remains to be seen whether Rajoy’s determination will be enough to quash the clamour for independence, given how fierce the opposition has been to the Spanish authorities.

The wider EU is staying out of the situation, determining it to be a Spain-only problem.

Eurozone data has been balanced today, with German and overall manufacturing rising but unemployment failing to fall as expected.

US Dollar Advances on Higher-Reported Manufacturing Activity

Today’s US data has shown a rise in manufacturing activity during September, from 58.8 points up to 60.8. Expectations had been for a decline to 58 points, so the US Dollar has appreciated on the news.

Higher manufacturing was reported on both the ISM and Markit measures, which has further amplified the positive impact of the news.

The US Dollar has also had a starting advantage this week, which was continued optimism about a Federal Reserve interest rate hike in December.

Hopes had gradually been built up over the previous week, when a number of Fed policymakers backed a near-term interest rate hike.

Among them was Fed Chair Janet Yellen, who voiced her concern about waiting too long before raising rates.

Other US news concerning the Federal Reserve has been speculation about who could succeed Janet Yellen as Chair. Some economists believe that this may be Kevin Warsh, a hawkish former Federal Reserve Governor.

While Warsh could lead to tighter monetary policy from the Fed, there is a background worry that the US economy might not be strong enough to handle this.

EUR USD Future Forecast: Euro may Firm on PMI and Sales Figures

The Euro might be able to make up lost ground against the US Dollar on Wednesday, when Eurozone PMI and retail sales figures come out.

For September’s finalised figures, a rise in services and overall composite activity is forecast; such a result could bolster the Euro.

If the following retail figures also rise then the single currency could appreciate notably against the US Dollar.

On the other side of the pairing, a number of Fed speeches will come over Monday to Wednesday. One of these, late on Wednesday, will be high-impact as it will come from Fed Chair Janet Yellen.

Wednesday’s economic announcements will include the ADP employment change for September, along with a non-manufacturing PMI for the same month.

Estimates are for a higher reported level of non-manufacturing activity, along with a 130k increase in employed persons.

Although the Eurozone data on Wednesday has been forecast positively, the US Dollar may still prove the dominant currency.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Euro Forecasts