The Euro to US Dollar exchange rate has been trading in a tight range since the start of the week.
Spanish Government Chooses Nuclear Option, Euro remains Steady
Today’s Euro to US Dollar appreciation comes in spite of a significant escalation in the Catalonian independence crisis.
The Spanish government has decided to trigger Article 155 at the weekend so they can remove power from the Catalonian government.
This follows inaction from Catalonian President Carles Puigdemont, who failed to clarify his intentions before a deadline on Thursday morning.
A Spanish government spokesman has detailed how Article 155 will work; ‘We have envisaged a range of scenarios and will apply 155 accordingly. It’s not a question of applying it in its entirety or of taking over every government function or department.
Clearly the Catalan government would lose many of its powers, though not all. It’s a case of using a scalpel, not an axe.’
While this would see some level of Catalonian autonomy remain, the population might not take this lying down.
Given the level of unrest and anger towards the Spanish authorities, it is possible that there will be demonstrations, unrest or potentially even riots after these changes are effected.
US Dollar Devalued by Mixed Signals from Federal Reserve
The odds of a US interest rate hike in December remain over 90%, but the US Dollar has still declined against the stronger Euro today.
This loss is down to conflicting commentary from the Federal Reserve.
On the plus side, the Fed has estimated that recent hurricanes on the southern and eastern coasts might not have caused lasting economic damage.
Less positively, however, the central bank sees little momentum behind an inflation pickup. This means that a near-term interest rate hike might not materialise.
Euro could Plummet if Catalonian Citizens Protest 155 Decision
With tensions still extremely high in Catalonia after the latest government decision, the Euro could be at risk of a drop on or before the weekend.
If Catalonian citizens rally around their regional government and violently resist the Spanish authorities, the Euro could dip.
In the US, Friday afternoon’s budget announcement might be enough to cause a USD/EUR rally.
The September budget statement is forecast to show a $6bn surplus, compared to the $-108bn deficit seen in August.
Latest EUR USD Exchange Rate Movement
The Euro has risen against the US Dollar today to an interbank rate of 1.1825. USD/EUR has dropped to 0.8455.