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Catalonian Crisis Damages EUR GBP Exchange Rate, ahead of Government Takeover

October 23, 2017 - Written by Frank Davies

Last week saw the Euro make a minor advance against the Pound, from an opening exchange rate on Monday of 0.8889.

While the Euro rose to a high of 0.9021 during the week, it ultimately closed only slightly higher at a rate of 0.8933.

EUR Drops as Spanish Government Prepares for Catalan Crackdown



A worsening of the political situation in Spain has kept the Euro in check today, leading to a decline against the stronger Pound.

Following the passing of yet another deadline last week, the Spanish government has finally had enough and decided to take control of the Catalonian government.

Last week, Catalonian President Carles Puigdemont was faced with the choice of shutting down the independence campaign or officially declaring independence.

He did neither, which led to Spanish PM Mariano Rajoy taking this unprecedented step. Rajoy said on Saturday that;

‘I’m under the impression that…some wanted to reach this situation. It wasn’t our intention [to shut down the government, but] no government of any democratic country can accept that the law is ignored, violated and change’.


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Seemingly making up for his past indecision, Carles Puigdemont responded by saying;

‘The Spanish government has proclaimed itself the representative of the people of Catalonia in an illegitimate manner. We must rally together to defend our institutions’.


The Spanish government’s plan is to disband the Catalonian government, then hold elections within six months.

The action of both these measures could further weaken the Euro. If there are violent protests to the shutdown of the Catalonian government, the Euro could tumble because it signifies a widening rift between the region and country as a whole.

In the latter case, if regional elections result in more pro-independence politicians gaining power, the move could backfire and just bring more powerful opposition to Spanish rule.

GBP Advances despite Warning from UK Business Heads



While there are also background issues in the UK today, the Pound has still appreciated regardless.

The main news has revolved around a joint letter from five UK business groups, addressed to Brexit Secretary David Davis.

Leaders of groups such as the British Chambers of Commerce and Confederation of British Industry (CBI) have called on the government to commit to a Brexit transitional deal, urgently.

The issue is that with talk circulating of the government preparing for a ‘Hard Brexit’ or even walking away without a deal, there is a great deal of uncertainty among UK businesses.

The situation has not been helped by a recent social media post from Lloyd Blankfein, CEO of Goldman Sachs.

While the bank does maintain an office in London, Blankfein has recently tweeted;

‘Just left Frankfurt. Great meetings, great weather, really enjoyed it. Good, because I'll be spending a lot more time there. #Brexit’.


This was deemed by some to be a veiled criticism of the UK government, as it came just as Prime Minister Theresa May was entering negotiations with EU officials.

In early October, it was reported that Goldman Sachs had rented office space in Frankfurt, which has reignited fears that major companies in the UK financial sector could abandon London in droves if Brexit goes sour.

Other UK news has emphasised the Euro’s greater weakness against the Pound - Confederation of British Industry (CBI) business optimism stats have shown an -11 point decline for the Q4 estimate.

EUR GBP Exchange Rate Outlook: Euro Recovery possible on Confidence Flash



The next Eurozone data to watch out for will come this afternoon, consisting of a consumer confidence flash for October.

In a minor ray of hope for the Euro, estimates are for a small improvement from -1.2 points to -1.1. The flash figure is only an estimate, so the actual final figure could prove even better in the coming weeks.

Outside of any surprise Brexit developments, the Pound is only expected to be affected by GDP data on Wednesday.

This will consist of GDP growth estimates for the third quarter and traders predict that a small year-on-year slowdown will take place.

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