Despite the events in Catalonia taking many of the headlines, EUR has withstood any heavy losses against the major currencies. It has found support against Sterling, gaining almost two cents from last week’s position. This in my opinion has as much to do with the continued negative market perception around the UK, as it does with any overriding confidence in the Eurozone.
As such, clients holding the single currency may count themselves lucky that they have not seen any significant downturn in the Euro’s value following the negative reports this week.
With the Catalan government planning to announce their independence as early as Monday, the markets will be waiting in anticipation for the Spanish PM’s retort.
He has already threatened to impose direct rule over the region and any further destabilisation. Public infighting could cause investors to flee the single currency.
What is keeping the Euro from falling in value?
Another reason the Euro is holding firm is due to the European Central Bank (ECB) position on tapering their current Quantitative Easing (QE) programme. Any decision to withdraw or alter their current monetary policy stance at their next meeting on October 26th could be key. This may well give investors a key insight into future policy, with any winding up of QE indicating that the Eurozone economy is prospering, and no longer requires any external support.
However, it is unlikely to be all plain sailing for the Eurozone, with the recent German election results a stark reminder of the current times. If the EU’s leading economic powerhouse is facing public division, with questions over Chancellor Angela Merkel and her policies, we could find that any political uncertainty puts pressure on the Euro, with a domino effect possible among other nations.
EUR sellers are still looking at some of the best levels seen over the past few years. It would be a good idea to keep a close eye on current events and upcoming data releases as we may be likely to see some Euro volatility in the coming months, despite the on-going issues surrounding the UK economy.