Currencies: Euro holds losses after Catalonia independence vote stirs Spanish turmoil

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The euro tumbled on Monday, notably against the dollar but also against other rivals, after an independence referendum in Spain’s Catalonia region turned violent, leaving hundreds injured in clashes between police and voters.

Where are currencies trading?

The ICE U.S. Dollar Index DXY, +0.52% which measures the buck against a basket of six major rivals, rose 0.5% to 93.582. The WSJ Dollar index BUXX, +0.41% which compares the dollar to 16 other currencies, was up 0.4% to 86.64.

Among the biggest movers, the euro EURUSD, -0.6095%  slid to $1.1744 from $1.1814 late Friday in New York. The euro EURGBP, +0.2835%  remained positive against the British pound, paring losses from earlier in the session, changing hands at £0.8854, up from £0.7463 late Friday.

The British pound GBPUSD, -0.9031%  was more than 1% down against the greenback at $1.3262, versus $1.3399 late Friday.

Against the Swiss franc EURCHF, +0.0524% the euro slipped to 1.1443 francs, compared with 1.144 francs late Friday. The dollar extended its gains against the Swiss currency USDCHF, +0.6921% last trading at 0.9744, up from 0.9680 late Friday in New York.

A chunk of the gains in the dollar index came from its strength against the Japanese yen USDJPY, +0.18% jumping to nearly ¥112.59, from ¥112.49 late Friday.

Against the Canadian dollar USDCAD, +0.3609% the buck rose to C$1.2502, compared with C$1.2471 late Friday.

What’s driving currencies?

The euro kicked the week, the month of October and the fourth quarter off lower as more than 800 people were injured in clashes with police in Spain’s northeastern region of Catalonia, which held an independence referendum that had previously been declared as illegal by the central government in Madrid. The region’s leaders said the referendum results were overwhelmingly in favor of independence with 90% of 2.02 million votes in favor of a split. A declaration of independence could come within days, as separatists have a majority in Catalan parliament.

Investors will be watching the situation closely to see if it morphs into a bigger crisis for the eurozone.

“There’s a high chance that Spain may be headed towards a new crisis, especially if Catalonia’s president, Carles Puigdemont, declares independence as he has promised to do in the next 48 hours. This will lead to more violence and probably an intervention from EU leaders, who will come under pressure to take action,” said Hussein Sayed, chief market strategist at FXTM, in a note to clients on Monday.

Also see: Brave investors might want to buy the dip on these 2 Catalonia-based banks

Meanwhile in the U.S., the dollar shrugged off what’s believed to be the deadliest mass-shooting in U.S. history, which happened at a concert in Las Vegas on Sunday.

Analysts said the dollar also remained buoyed by the prospect former Fed official Kevin Warsh, who is viewed as a policy hawk, could be tapped to replace Fed Chairwoman Janet Yellen when her term at the helm expires in February. President Donald Trump met with Warsh and Jay Powell, a current member of the Fed’s board of governors. Trump on Friday said he has had four meetings regarding the top Fed post and would make a decision in the next two or three weeks.

What else are market participants saying?

After the British pound was the top currency performer in September, it “is the day’s worst performer amid growing concerns with PM May’s authority ahead of this week’s annual Conservative Party conference,” Ashraf Laidi, head trader and strategist at Intermarket Strategy, wrote in a blog post.

What are the data ahead?

The market will be keeping a close eye out for the monthly nonfarm payrolls jobs report, due on Friday.

Monday morning data included Markit’s manufacturing purchasing managers index for September, which came in at 53.1, up from 52.8 in August. The Institute for Supply Management manufacturing index read 60.8 in September, its highest level since 2004. That compares with expectations for 58.1 in a MarketWatch poll of economists.

Construction spending rose by 0.5% in September, beating the MarketWatch consensus forecast of 0.4% growth.

It will be another busy week of appearances by Fed speakers. Minneapolis Fed President Neel Kashari on Monday urged Fed policy makers not to raise interest rates again until inflation hits the central bank’s 2% annual target, disagreeing with Fed Chairwoman Janet Yellen.

Dallas Fed Rob Kaplan will appear in a moderated discussion at the Fed El Paso Branch at 2 p.m. Eastern Time Monday. On Wednesday, Yellen will make opening remarks at a conference on community banking at the St. Louis Fed.