On Monday, the U.S dollar climbed and U.S Treasury yields reached their highest since mid-July. In contrast, Spanish borrowing cost increased and stocks dropped as investors were anxious due to a forceful attack by police on an independence vote in Catalonia.
Solidifying the expectations that the U.S. Federal Reserve for the third time this yearvwill raise interest rates drove Treasury yields up. Ten-year yields topped 2.37 percent boosting the dollar half a percent higher against a multitude of currencies. Yields then pulled back and the dollar held most of its gains.
Traders believed that the vote in Catalonia had little impact of the euro, but it fell 0.7 percent to $1.1733.
In Spain, IBEX stocks dropped 1.4 percent. The two banks affected most by IBEX index were Catalonia-based Banco de Sabadell down 5.3 percent and Caixabank 4.1 percent. Spanish 10-year government bond yields increased over 7 basis points to 1.69 percent.
The cost of covering the Spanish debt advanced to its highest in over a month. According to Catalan officials, 90 percent of the voters in Sunday’s ballot preferred separation, which brings on the idea of an announcement of independence in the wealthy region of the country.
“This issue is likely to complicate policy-making at a national level as opposition parties seek to gain political capital from what is arguably a gross PR error on the part of PM Rajoy’s government,” stated Richard McGuire, head of rates strategy at a London Bank.
The dollar steadily climbed since Fed chief Yellen stated that it would be “imprudent” to maintain the hold on monetary policy until inflation rose around 2 percent.
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Last week the dollar had its highest performance year to date. The rumors that President Trump may choose Fed Governor Kevin Warsh to replace Yellen as head of the central bank which also increased the value of the dollar as well as Trump’s new tax plan.