The dollar failed to continue its strengthening, and it had to seriously give up its position. Partly this was due to a decrease in fears about Catalonia, as there is a feeling that Madrid and Barcelona will find a peaceful solution to the issue. At the same time, the effect was so strong that even the growth of inflation and the text of the minutes of the meeting of the Federal Commission for Open Markets could not help the dollar. The inflation accelerated from 1.9% to 2.2%, and in the text of the protocol, it says that in December, the Fed will raise the refinancing rate. And, in general, all American statistics were purely positive. Moreover, inflation accelerated, so also the growth rates of producer prices rose from 2.4% to 2.6%. Also, the growth rate of retail sales, instead of slowing, accelerated from 3.2% to 4.4%.
At the same time, there were no significant data in the Old World at all. Only in Great Britain has the growth rate of industrial production increased from 1.1% to 1.6%. Also, the pound was supported by rumors about the negotiations on the withdrawal of Britain from the EU. At first, statements were made that the negotiations had reached a deadlock, and almost immediately it became known that Britain could be granted a two-year transition period.
But the main engine of the weakening of the dollar was Catalonia. At least until Thursday the situation will remain stable. It is on October 19 that the Catalan authorities must finally decide on the issue of independence. Meanwhile, the rather ambiguous position of the head of Catalonia gives reason to expect that it will not come to this.
This week in the US, there is not a lot of meaningful data. In particular, it is projected to accelerate the growth rate of industrial production from 1.5% to 2.0%. And although this is quite good, it is expected to reduce the number of issued construction permits with the same number of construction projects. And this is not the best signal, including for further dynamics in the industry.
But in Europe and the UK, a lot of interesting things is expected.
Inflation in the euro area should remain unchanged, which allows us to count on the fact that in December, the ECB will complete the quantitative easing program. In turn, the UK is expected to further increase in inflation, from 2.9% to 3.0%. Here, the Bank of England will have nowhere to go and will have to announce plans to raise the refinancing rate in the near future. If the Bank of England continues to remain silent, investors will begin to worry greatly about the regulator's ability to control the situation, which could have a very negative impact on the pound. So the most interesting will happen not at the moment of inflation data, but in an hour and a half when Mark Carney will perform. Also, the unemployment rate in the UK should remain unchanged. But the growth rate of retail sales may slow from 2.4% to 2.0%.
There is a high probability that by the end of the week Catalonia will again make everyone nervous, in which case the euro / dollar pair may finish the week at the level of 1.1650. If the situation is normalized and Madrid and Barcelona come to some agreement, we can expect growth to 1.1950.
The fate of the pound will depend on Mark Carney, and if he declares his intention and even the need to raise the refinancing rate in the near future, then the pound / dollar pair will rise to 1.3450. If he does not say anything specific on this issue, which will greatly disappoint investors, the pound may fall to 1.3000.
