The euro plummeted against the dollar after a catastrophic independence referendum in Spain and as higher US Treasury yields pushed the dollar up the board.
The euro slipped 0.6 percent to $1.1741, which is close to its lowest level starting mid-August. Meanwhile, the currency fell to its weakest in three weeks against the Swiss franc at 1.1407 francs per euro.
“The reaction on the euro is very limited because it is not seen as a general euro zone problem—it’s a hiccup,” said Antje Praefcke, who is a Commerzbank currency strategist in Frankfurt.
Against the British pound, the euro similarly slipped to £0.8805 from Friday’s £0.7463.
Stronger Dollar and Yen
Meanwhile, the dollar was buffed up as the US dollar index, which tracks the greenback against a basket of six other currencies, rose 0.6 percent to 93.588. The WSJ dollar index, which is similar to the US dollar index except it measures the buck against sixteen other currencies, surged 0.5 percent to 86.70.
The dollar exhibited its strongest weekly performance of 2017 last week, pushed by a revival of the “Trumpflation trade.” The expectation that Trump would deliver the stalled tax reform plan and the anticipation of an interest rate hike by the US Federal Reserve fueled this revival.
The dollar also rose against the yen, ascending 0.3 percent to ¥112.84. Big Japanese manufacturers exhibited the most positive business outlook, which is considered a sign of the country’s recovering economy. This is then attributed to robust global demands.
According to reports, the yen’s upsurge could be used for Shinzo Abe’s attempt to convince voters in an October 22 election that his “Abenomics” had helped improve their livelihoods.
The Catalonia Clash
Investors have watchfully followed the violent independent vote in the Catalonia region of Spain. Hundreds were injured after the police used batons and rubber bullets in an attempt to stop Sunday’s voting.
The Catalonia clash resulted to injuries to around 800 voters who attempted to cast ballots, even though the central government has declared the voting as illegal. However, the leaders of the region stated that the referendum results were overwhelmingly in favor of Catalonia’s independence. They claimed that 90 percent of the 2.09 million votes were in favor of the proposed split. Since the majority of the Catalan parliament is dominated by separatists, a declaration of independence could be declared in a matter of days.
Consequently, investors are watching carefully albeit nervously to get a heads up if the situation would be buffed up into a bigger crisis for the eurozone.
“There’s a high chance that Spain may be headed towards a new crisis, especially if Catalonia’s President, Carles Puigdemont, declares independence as he has promised to do in the next 48 hours. This will lead to more violence and probably an intervention from EU leaders, who will come under pressure to take action,” said Hussein Sayed, who is a chief market strategist at FXTM.
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