Sterling Rises On Catalonia Tension
The Pound strengthened against the Euro as markets focused on the rising tension between the Spanish government in Madrid and the regional Catalonian government in Barcelona. Prime Minister Theresa May is going to give a statement to MP’s today, informing them about last week’s EU Council summit. An article in the German FAZ newspaper said that, according to sources close to the President of the EU Commission, Jean-Claude Juncker described May as “begging for help” and “despondent and discouraged” during their dinner, a few days before the EU summit.
In Spain, the secretary for external relations of the Catalonian regional government, said that only the Catalans have the right to change institutions, attacking the Spanish government’s decision to implement Article 155, which enables Spain to take control of the region. In Italy, people voted “Yes” in two referendums in Lombardy and Veneto, asking for a new financial arrangement with the central government in Rome.
Pound Sterling – UK Markets
Today, Sterling fell against the US Dollar with the exchange rate set at $1.31. The Pound edged up against the Euro with the exchange rate set at €1.12. The GDP growth report for the third quarter of 2017, due to be released on Wednesday, is the most important financial data release this week for the UK.
According to media sources, Brexit Secretary David Davis will receive in the coming days a letter from five of Britain’s largest business lobby groups, urging him to finalise a Brexit transition deal, as soon as possible. The British Chambers of Commerce (BCC), the Institute for Directors, the Confederation of British Industry, the Federation of Small Businesses and the EEF are preparing a joint letter to express their fears regarding the fruitless negotiations so far. In the letter, it will be stressed that “an agreement on a transition is needed as soon as possible, as companies are preparing to make serious decisions at the start of 2018.”
The BCC said in a statement that Chancellor Philip Hammond should freeze business rates in the upcoming budget plan. Hammond is expected to present the new budget in the end of November. The BCC stressed that the corporate tax rate should remain at 19%, and added that business rate hikes should be cancelled for the next two years. An IHS Markit survey showed that UK households, during October, became more optimistic about the outlook of the British economy for the next year.
US Dollar – US Markets
The US Dollar strengthened against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, also inched higher coming in at 93.86. GDP data for the third quarter of 2017, jobless claims and house prices in the US are among the important data releases this week.
A CNBC Fed Survey showed that 45% of respondents believe that President Donald Trump will select Federal Reserve Governor, Jay Powell, to be the next Fed Chair. John Taylor, a Stanford economics professor is the second pick with 23%. However, 44% of the strategists, economists and managers who were asked, replied that they would like Janet Yellen to have a second term. Analysts expect that the President will make a decision before the 3 November.
Donald Trump said in an interview on Fox Business that Jay Powell and John Taylor are both very talented, a fact that makes his final decision very hard. The President said that he is even considering using them both in order to fill spots at the Fed’s board. In other news, Baker Hughes reported that the number of US rigs drilling for oil fell for a third consecutive week, sending oil prices higher during the weekend.
Euro – European Markets
The Euro dipped against the US Dollar with the exchange rate set at $1.17. The most important event for the Euro this week is the ECB meeting on Thursday, during which the board will decide if it’s going to hike the bank’s benchmark interest rate and announce how it will reduce the asset-purchase programme.
Catalonia is still in the spotlight as the Spanish government decided to implement Article 155, which allows it to take control of the region. Raul Romeva, who is the regional government’s secretary for external and institutional relations, gave an interview on BBC4 in which he said that only the Catalan people have the right to change Catalan institutions. Romeva noted that EU democracy will lose its credibility if it allows Rajoy’s government to seize control of Catalonia.
The Spanish deputy prime minister, Soraya Saenz de Santamaria, said that the government in Madrid hasn’t had any contact with the Catalan regional government since Saturday. She added that there is a possibility that a single representative will be assigned to govern Catalonia temporarily. In Italy, more than 90% of the people in Lombardy and Veneto voted “Yes” in referendums, asking for greater autonomy from the government in Rome. These two regions are among the wealthiest in Italy and are seeking a new financial arrangement with the Italian government.
Other Currencies – Highlights
Sterling inched higher against the Australian Dollar, trading at 1.68 AUD. On Wednesday, the Australian Bureau of Statistics (ABS) will release the third quarter’s inflation data. National Australia Bank (NAB) analysts suggest that inflation will rise to 2% on an annualised basis and by 0.8% when compared to the second quarter. Their report said that higher electricity and energy prices have contributed to the rise. The bank’s experts believe that the third quarter’s inflation will be broadly on track with the Reserve Bank of Australia (RBA) forecasts.
The Pound dropped against the New Zealand Dollar, trading at 1.89 NZD. The new Prime Minister Jacinda Ardern is going to announce portfolio positions for the cabinet in the next few days. Deutsche Bank strategists wrote in a report that possible caps on migration and restrictions on foreign investments in housing could weigh on New Zealand’s economic growth. However, they think that the Kiwi will consolidate around current levels and rise once policy certainty emerges.
Sterling rose against the Japanese Yen, trading at ¥150.14. Prime Minister Shinzo Abe is the big winner in Sunday’s snap parliamentary election. The Liberal Democratic Party (LDP) and Komeito coalition kept its two-third majority in the parliament. Abe said that the result was better than expected. A Nomura report said that Abe’s victory reduces the risk of a sudden change in economic policy.