USD hurt by Republican infighting
Having hit 1.17 last week, its highest level against the EUR since July 25, the USD has fallen back throughout this week.
The EUR moved higher throughout the week as Carles Puigdemont, the regional leader of Catalonia, pulled back from separating from Spain – declaring independence but then immediately suspending its implementation.
While the situation in Catalonia is likely to remain tense, we expect the region and the Spanish government to ultimately come to a compromise between the two sides that results in Catalonia remaining in Spain.
Also pushing the USD lower was infighting within the Republican party as President Trump and Senator Bob Corker exchanged public insults, increasing the concern over the GOP (Republican Party)’s ability to come together to pass tax reform following the failure to pass an Obamacare repeal.
“Despite the negative headlines and the lack of specific details regarding the ultimate tax proposal, we ultimately expect tax reform to be accomplished in H1 2018.”
This should be supportive of the USD. Over the long-term, interest rate differentials and stronger economic growth should be supportive of a stronger USD from current levels. Our 12-month price target is USD1.10/EUR.
The JPY remained flat throughout the week as PM Abe began campaigning for the upcoming lower house elections in Japan. PM Abe has said he will resign if his party (Liberal Democratic Party) and coalition members are unable to win a majority in the October 22 elections. Our 12-month JPY forecast is 115/USD.
USD vs. EUR so far in 2017
Source: CIO Bulletin, October 13, 2017