USD bullish
By Arnaud Masset
Rates hikes are coming, along with bond sales from the US Federal Reserve – and markets have yet to price these in, so we are bullish on the US dollar against most currencies.
The dollar bounced back on Monday, extending gains against almost all of its peers. Euro investors were buying dollars to flee the uncertainty generated by the Reign in Spain, that is the Catalonian elections. Dollar buyers are cheered by the likelihood of US tax reform, which might boost American inflation and growth. Some also speculate that the Fed Chair Janet Yellen might be replaced, when her term ends in February 2018, with a more hawkish candidate such as Kevin Warsh.
Friday saw a USD retreat, in the wake of disappointing consumer-expenditure figures, but the greenback quickly bounced back. US 10-year treasuries rose to their highest since mid-July at 2.364% while the dollar index returned to 93.60 after falling to 92.95 last week.
Reign in Spain wobbles Euro only slightly
By Yann Quelenn
Amidst the Catalonia controversy, the Euro has slipped only slightly – remaining above 1.17 USD per Euro. Neither the European Union nor the Euro really needs nations: a weaker Spain would benefit the EU.
Contrary to the view of many, we don’t see the Catalonian vote triggering a political crisis in Europe, even short-term. The vote does, however, reflect Spain’s inequities. Catalonia, its richest region, is tired of subsidising the rest.
The vote questions whether Europeans can choose self-determination. The answer, it seems, is a big no: Spain’s central government declared the vote illegal. Police presence and rioting at many polls convinced ‘remain’ voters to stay home, so the ‘Catalexit’ bloc won a reported 90% of the poll.