Euro gets weaker after a violently-marred Catalonia vote

Independence vote turning ugly

The Catalonia independence voted was declared illegal by the Spanish government. Nevertheless, the Catalonia regional government decided to organize the vote. Police forces were brought in – trying to block access to voting places. Events soon took a violent turn.  Many citizens of the region were out on the streets from the early hours of the morning in order to be able to get to the ballot boxes. Disturbing images from the Catalan streets showed people bloodied after direct fights with police. Still, more than 40% of Catalans voted and 90% of them voted for independence. How Madrid will respond to that vote and is there any chance for Catalonia to actually break free from Spain – remains to be seen. So far, this perspective seems quite distant. Turmoil in Catalonia hit the hardest Spanish financial instruments with Ibex index recording losses and Spanish obligations losing credibility. But the euro also got weaker, with exchange rate against USD being not quite satisfactory.

Further perspective is more optimistic

Those holding or investing in the euro, or those who were planning to change euro to other currencies in the nearest future, shouldn’t get too frightened that the best exchange rate is in the past. Analysts don’t expect the Catalan independence vote to have stronger and longer impact on EUR exchange rate. Still it is quite unlikely that Catalonia will leave Spain or that it will dump the euro. Situation should come back to normality in a few days, with investors being again  more eager to buy euro. Much important impact on EUR exchange rate will have a decision of the European Central Bank on reduction of QE (quantitative easing). As of now, it got a bit quiet on that subject. The session of ECB will take place at the end of the month and as markets wait for any move in the QE matter, no drastic alterations in the euro’s exchange rate are expected.

Dollar strong on industrial data publication

The weakness of EUR against USD can’t only be explained by the impact of the Catalonia vote turning violent. The US dollar had some reasons to be strong on its own, without even feeding on the eurozone struggles. The newest data showed that US factory activity surged to a more than 13-year high in September. The result was boosted by gains in new orders and rise of raw material prices. What’s more, emerging speculations that President Donald Trump is getting closer to finding a new chief for the US central bank were, without doubt, also adding to the dollar gains. Trump informed that he conducted four meetings discussing that matter. The decision should be announced in 2-3 weeks. One of the person he met with was former Federal Reserve Governor Kevin Warsh, who is strongly tipped for that job. Warsh is seen as more hawkish in comparison to gentle current Federal Bank Chairman Janet Yellen. Those speculations pleased investors – Warsh could be a sign of a bit of revolution in the Fed Bank, which could lead to even stronger dollar. Yellen is still in game though, so in matter of weeks everything could change yet again in terms of US exchange rate against EUR, JPY or CHF.