A number of political events and statements by the head of the European Central Bank made at the end of last week continue to exert pressure on the euro.
The US dollar fell against the euro at the beginning of the US session on Friday after weak inflation data. This disagreed with the economists' forecasts but then managed to restore some of the positions.
The President of the European Central Bank, Mario Draghi, said on Friday that inflation in the euro area remains too weak despite the acceleration of economic growth. This once again indicates that the European regulator will be extremely cautious when deciding to wind down the bond purchase program which may be announced at the end of this month at a regular meeting.
Draghi believes that the main problem is the indicators of core inflation which have not yet shown convincing signs of sustained growth. For the European Central Bank, the inflation rate towards the ECB's target level of just under 2% is not yet convincing enough, the ECB president added.
However, the statements made today at the Asian session by a representative of the Federal Reserve, Rosengren, led to the demand for the US dollar. Rosengren drew attention to the fact that the December meeting is a reasonable time for another increase in rates. In his view, given that in the coming months the economic situation will be good, raising interest rates is necessary for a balanced economic recovery. The representative of the Federal Reserve also drew attention to a strong labor market, which is likely to provide an increase in inflation. Because of this, a delay in raising rates could lead to overheating of the economy.
The pressure on the euro is also exerted by the "suspended situation" in the political problem of Catalonia and Spain. Today, it became known that the leader of Catalonia called for a dialogue with the Prime Minister of Spain within the next two months and asked to organize this meeting as soon as possible.
The head of Catalonia also did not explain whether he announced independence last week while the Spanish government requires a clearer answer on this position. The central government of Spain stated that the controversial answer will be interpreted as affirmative and if the Catalan President refuses to withdraw the declaration of independence, Spain will deprive Catalonia of a number of powers.
Such a scenario will negatively affect the euro, which apparently, will continue to decline against the US dollar, gradually returning to the important levels of support located in the area of 1.1730 and 1.1680.
