The euro continues to remain under strong pressure on the wave of the referendum in Spanish Catalonia, as well as the fall in expectations that the euro zone regulator will decide against stabilizing the inflation level at 1.5% to stop stimulating the European economy next year.
The results of the referendum in Catalonia, the south-eastern province of Spain, as well as the massive unrest in Barcelona, which resulted in clashes with the police, put pressure on the single currency. News from the Iberian Peninsula again reminded investors that the euro area remains a troubled region. The spin-off of centrifugal forces not only in Spain, but also the general growth of Euro-skepticism in other countries, such as Italy or Greece and even in Germany, as indicated by the elections to the Bundestag, is unlikely to contribute to the appreciation of the single currency. On the contrary, it can become a trigger for investors to reduce their activity in this region. But in the States, on the contrary, the activity will grow, if, of course, the new tax program from D. Trump will be adopted by the Congress.
An additional incentive for the growth of the dollar paired with the euro is also the persistence of a tough rate for further raising the rates by the Federal Reserve, which he already made clear at the end of the last September meeting. Another new factor in favor of a strengthening dollar could be the possible appointment of former Fed member Kevin Warsh to the position of the head of the Fed after retiring on the expiration of J. Yellen's work in February next year.
Warsh is considered to be a supporter of a more stringent monetary policy than it was under Yellen, who is very careful. Therefore, the market perceives the probable appointment of Warsh as another factor in the desire of the current US administration to normalize monetary policy. Appointment of Warsh to the position of the head of the US Central Bank, in our opinion, will definitely be positive for the continued strengthening of the US currency.
Forecast of the day:
The EUR/USD pair remains under strong pressure on the wave of events in Spanish Catalonia. If the outcome of the referendum will continue and this will lead to a political confrontation between Barcelona and Madrid, then the fall of the pair will only increase. From a technical point of view, the price remains in the short-term downtrend, and its location below the 1.1715 mark may be the reason for the decline to 1.1620.
The GBP/USD pair is also under pressure, but already internal factors. Published on Monday, the data of the index of business activity in the manufacturing sector in the UK indicate a decline in business activity, which may serve as a reason for the Bank of England not to rush with higher interest rates this year. Given this, we can assume that the pair will continue to fall to 1.3160.
