With Fed chair Janet Yellen being confident that inflation measures will move towards the Fed’s 2% target in the upcoming months and business conditions improving the most in three years in October according to a survey conducted by the New York Fed, the dollar index managed to gain 0.12% on the day, climbing to a 5-day high of 93.36. Dollar/yen stood flat around 111.81.
Meanwhile, in the fiscal policy front, a tax analysis released by the Trump administration on Monday tried to counter criticism that tax proposals are largely benefitting the rich, showing that middle-class earnings would increase by $4,000 under the new tax reforms.
The Catalan leader, Carles Puigdemont, missed the deadline set by the Spanish government, choosing instead to reply to the Spanish Prime Minister, Mariano Rajoy, with a letter, in which he insisted for both sides to start a dialogue over the next two months. As a response, Rajoy expressed through a written statement that Puigdemont would be "solely responsible" if the Spanish government takes control of the region, while Spain’s Deputy Prime Minister, Soraya Sáenz de Santamaría warned that Madrid would take the "next step" unless Catalonia changes its stance by Thursday.
In terms of data released today out of the Eurozone, August’s trade surplus narrowed to 16.1 billion euros as the growth in imports offset the rise in exports due to a stronger currency. Expectations were for trade surplus to increase by 0.1 billion euros to 23.3 billion.
The news above, however, had a moderate impact on the euro at a time when political concerns in other Eurozone countries (besides Spain) are on the rise, as traders were more confident that ECB policymakers will announce the tapering of the central bank’s asset-buying program on October 26. Particularly, political risks involved the rising support for Euroskeptic parties in Sunday’s national elections in Austria and in Germany the previous month, which gave the chance to far-right parties to enter the government after a long time of absence. The euro managed to recoup part of its losses against the dollar during the session, climbing to $1.1809 after earlier touching a one-week low of $1. 1779.Still, the pair remained 0.13% down on the day.
The pound was trading steadily around $1.3281 as the UK Prime Minister, Theresa May, was preparing for her meeting with the head of the European Commission, Jean Claude Junker, and the EU’s Chief Brexit negotiator, Michel Barnier, in Brussels at 1630GMT. May’s spokesman said on Monday that the British Prime Minister is expecting a "constructive" discussion that would contribute to her efforts for a smoother Brexit. CPI readings out of the UK will be also in focus on Wednesday with analysts forecasting headline inflation to rise slightly by 0.1 percentage points to 3.0% y/y in September.
The loonie was the worst performing major currency, tumbling to a one-week low as the time is ticking for NAFTA negotiations. The treaty was not successfully updated so far. Negotiators are seeking to extend the remaining rounds (three out of seven) to meet a deadline at the end of December after tough proposals by the Trump administration complicated the talks. Dollar/loonie gained 0.58%, last trading at 1.2538.
In energy markets, oil prices surged on the news that Iraq’s Kurds disrupted oil production amounting to 350,000 bpd as tensions heightened with the Iraqi government. WTI crude jumped by 1.11% to $51.85 per barrel, while Brent drifted higher by 1.47% to $58.01.
