Concerns continued to mount over the standoff between the Spanish government and the devolved regional administration of Catalonia, leaving the Euro on a generally weaker footing.
As reports emerged suggesting that the region could issue a unilateral declaration of independence in a matter of days the appeal of the single currency diminished sharply.
With investors increasingly jittery over the political outlook of the region, and the Eurozone as a whole, EUR exchange rates came under renewed pressure.
The release of the latest European Central Bank (ECB) meeting minutes did not do anything to boost demand for the Euro on Thursday, particularly as the general tone of policymakers appeared to remain dovish.
However, as Carsten Brzeski, Chief Economist at ING, noted:
‘Recent political developments have put the ECB and the tapering discussion on the backburner. At least for the time being. However, with three more weeks to go until the next ECB policy meeting, the tapering discussion should gain momentum soon again.’
A rallying point could be in store for the Euro US Dollar exchange rate ahead of the weekend, providing that August’s German factory orders data proves encouraging.
If the data shows a solid rebound in orders on the month then optimism in the underlying health of the Eurozone’s powerhouse economy is likely to strengthen.
Even so, developments in the Catalan situation are likely to dominate the outlook of the EUR USD exchange rate in the near term.
US Dollar Volatility Forecast on Labour Market Report
An unexpectedly sharp decline in US jobless claims bolstered the US Dollar, meanwhile, as the domestic labour market continued to demonstrate signs of tightening.
USD exchange rates also benefitted from the latest commentary from San Francisco Fed President John Williams, who maintained a rather hawkish tone.
Although Williams is not currently a voting member of the Federal Open Market Committee (FOMC) this still suggests that policymakers remain on course for further monetary tightening.
However, the EUR USD exchange rate could find some support if tomorrow’s raft of US labour market data fails to impress investors.
Forecasts point towards a more limited increase in non-farm payrolls in September, with the economy suffering the impact of the recent hurricane season.
Unless the headline figure prints significantly to the downside then the mood towards the US Dollar is unlikely to significantly deteriorate.
Even so, a weaker showing from the latest wage growth figures could undermine the Fed’s push for tighter monetary policy.
Current EUR USD Interbank Exchange Rates
At the time of writing, the Euro US Dollar exchange rate was slumped in the region of 1.1710. Meanwhile, the US Dollar Euro exchange rate was making solid gains around 0.8537.