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Weekly roundup: Mixed week for euro as Catalonia situation weighs on market confidence

currency-newsWeekly roundup: Mixed week for euro as Catalonia situation weighs on market confidence
The euro was on varying form last week, in spite of some positive Eurozone data. Strong bets of an interest rate hike from the Federal Reserve in December undermined demand for EUR, while the political situation in Spain further softened market confidence.

Mixed data on Monday put the euro largely on the downtrend at the start of last week. German wholesale price growth accelerated in December, indicating that inflationary pressure was building, but the trade balance figures disappointed.

The seasonally-adjusted Eurozone trade balance did beat forecasts in August, but July’s figure was revised downwards. On a non-seasonally adjusted basis the trade balance significantly disappointed forecasts, dropping from €23.2 billion to €16.1 billion.

On Tuesday the euro was on poor form thanks to only sluggish growth in the German ZEW economic sentiment index, and the fact that an upcoming speech in the Catalonian parliament was expected to see the region declare independence following the recent referendum.

European Central Bank (ECB) President Mario Draghi gave a public address on Wednesday – which is usually the only ingredient needed for a euro slump – but as his speech consisted of calls for more fiscal stimulus and no references to monetary policy, there was nothing to particularly unsettle the euro. Markets were also cheered by the fact that, while Catalonia had indeed declared independence, they announced the split would be delayed in order to give time for negotiations with the Spanish government.

News that the Spanish government was preparing to use constitutional powers to impose direct rule upon Catalonia helped support the euro on Thursday, as it was seen as the least disruptive way the situation could unfold.

The euro was on soft form going into the weekend, despite strong German producer price figures that indicate inflationary pressures continue to build in the Eurozone’s strongest economy. The Spanish government had announced that it would take measures to impose direct rule upon Catalonia, following the region’s declaration of independence earlier in the week.

Thursday’s ECB meeting is likely to create notable volatility for the euro over the coming days. Markets are expecting the ECB to begin tapering the quantitative easing programme; if there is no such outcome then the euro stands a good chance of plummeting.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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