Dollar recovery continues

The dollar’s strength yesterday followed a particularly strong set of factory output figures: the manufacturing ISM report hit its highest level since May 2004 and beat expectations that were factoring in a sizeable knock to output courtesy of the recent Atlantic hurricane season. The prices index component of the figure – a leading indicator of inflation – rose close to record levels.

The calendar’s markedly quieter today, but that does not mean this current bout of USD strength will come to an end. Given everything that’s going on elsewhere in the world it may be the case that it’s not only the dollar being strong, but also plenty of other currencies are acutely weak right now. Friday’s payrolls data may be able to clear that up for us.

Political risk still an anvil round the neck of the single currency

Catalan instability is now a very real risk for the euro and EURUSD acted as such yesterday. We are in a bit of a no-man’s land legally given the vote over the weekend and what the Catalan parliament now decides to do regarding issues such as tax payments to the central coffers in Madrid and the imposition of Spanish state law.

As we have said before following uncertain political events, this will get worse for Spain and the euro before it gets better and, although yesterday’s economic data may have shown some strength and resilience, investors are seemingly unwilling to add to any euro holdings they may already have.

Spanish prime minister Mariano Rajoy is expected to make a statement on the issue at some point today.

Pound watching Conservative conference carefully

It is Brexit day at the Conservative party conference in Manchester, UK today. Three of the so-called Brexit Musketeers – Davis, Fox and Johnson – will speak today and therefore we would expect any new hints to come from them although we fear that all will likely be more cheerleaders than thought leaders come the end of the conference session today.

Have a great day.