Political factors drive risk aversion in Europe

On Thursday, the Dollar jumped and hit $113.14, its highest in two weeks against the Yen, as the two-year US Treasury Yield rose to its highest since November 2008 on the back of expectations for tighter global monetary policy. The Dollar’s rise was likely to be capped by uncertainty ahead of this weekend’s election in Japan. Most polls show Japanese Prime Minister Abe’s coalition on track to secure a roughly two thirds majority in Sunday’s general election ushering in continued political and monetary stability.

The Euro was set to break a four-day losing streak as investors weighed the prospects of Thursday’s Catalonia deadline. A Spanish government-issued deadline to President Carles Puigdemont is set to expire today, by which time Prime Minister Rajoy has asked for insight on the region’s intentions on independence amid the threat that he may revoke “self-rule” by invoking Article 155. Meanwhile, ECB President Draghi offered on Wednesday little fresh insight into the bank’s thinking ahead of next Thursday’s policy meeting, which may reveal further details on QE tapering plans.

Meanwhile, the Australian Dollar rose after the unemployment rate slipped to 5.5%, the lowest reading since May 2017. Employment climbed 19,800 in September, topping forecasts for a 15,000 rise, and marking 12 straight months of gains. However, sustained hiring momentum alone is unlikely to spark a change in the Reserve Bank of Australia’s accommodative monetary policy stance. Wage growth is still weak and household debt burdens continue to rise. The RBA expects wage growth to rise gradually as the economy and demand for labour strengthens.