The euro is unchanged in Friday trading. Currently, EUR/USD is trading at 1.1829, down 0.01% on the day. On the release front, German Final CPI came in at 0.1%, matching the forecast. Traders should be prepared for some movement from the pair in the North American session, as the US releases CPI and retail sales reports. The US will also release UoM Consumer Sentiment.
The Federal Reserve minutes from the September meeting appeared to confirm that a December rate increase is on the way. The minutes showed that many policymakers felt that a December hike “was likely to be warranted”. However, some policymakers remain concerned about low inflation levels and said that inflation would be a consideration in their decision on a rate hike. The odds of a December hike have increased dramatically in the past few weeks, mostly in response to Fed Chair Yellen and other FOMC members expressing optimism that inflation will move upwards. On Wednesday, Kansas City Fed President Esther George went event further, saying that low inflation did not pose a problem, as the US economy was strong and the labor market was at full capacity. Investors will be carefully monitoring Friday’s CPI reports as well as the Fed reaction. Currently, fed futures have priced in a December hike at 87 percent.
Did he or didn’t he? That is the question that Spanish Prime Minister Mariano Rajoy has demanded of Catalan President Carles Puigdemont, who last week declared Catalonia’s independence, but then suspended the move. On Wednesday, Rajoy gave Puigdemont eight days to reply and has threatened to suspend the Catalan parliament if indeed the regional government declared independence. The Catalan leader says he wants to negotiate with Madrid, but Rajoy has refused, saying session is illegal. The Spanish government has the backing of France, Germany, and other European Union members, and Catalonia itself appears evenly divided on independence. With both sides entrenched in their positions, the crisis is set to continue into next week. The crisis could take a toll on the Spanish economy, as several banks and large corporations have said they will move their legal headquarters out of Catalonia. The EU has refused to mediate, and is treating the issue as a domestic Spanish matter.
ECB President Mario Draghi said on Thursday that he plans to maintain ultra-low rates “well past” the end of its bond-buying program in December. The ECB has been under pressure to tighten monetary policy, primarily from Germany, where the central bank has called for tighter policy, given the stronger eurozone economy. The ECB is expected to taper its monthly bond purchases of 60 billion euros at its policy meeting on October 26, but Draghi has sent out a clear message that rate hikes will have to wait until 2018. With inflation levels will below the ECB target of around 2 percent, Draghi has been reluctant to raise interest rates until inflation shows clear signs of moving upwards.
