Yellen set to hike once before possible farewell.

Fed Chair, Janet Yellen is facing a tough few weeks as the names of her possible (probable) successor are discussed while she hasn’t been told officially that she won’t be reappointed. It seems probable that President Trump will have an opportunity to nominate four or five new Fed Governors. One of Mrs Yellen’s most influential supporters, Stanley Fisher, announced recently that he will stand down next week eight months before his scheduled departure date, citing personal reasons.

The whole makeup of the Fed is going to look different from January and it appears from the names being discussed that it will have a more “hawkish” outlook.

The current FOMC is likely to raise rates in December as its “parting shot”. The hike is entirely plausible for a Fed which wants to stay “ahead of the curve”. The outlook for inflation remains mixed but if they believe it is set to “take off” in 2018 then a precautionary hike is a wise decision.

The dollar index has started to recover and with the weakness likely to be exhibited by the pound and euro the recovery looks set to continue. Resistance looks to be around 94.00 although the downside now looks well supported.

Catalonia independence in a “few days”

The popular beliefs in the EU that the “rise of the right” appeared to have been quelled and the chances of Catalonian independence in the short term, according to Barclays Bank’s research at least, were at zero, were dismantled in spectacular fashion as first Germany then Catalonia showed that there is little certainty in modern politics.

The King of Spain has called the situation extremely serious and has accused Catalans of acting “outside the law”.The German election has seen the far right AfD receive 13% of the vote in the Federal election and following the independence referendum, Catalonian President Carlos Puigdemont announcing that he will declare independence in the next few days.

An independent Catalonia will be outside the EU and any attempt to join would surely be vetoed by Madrid. The Catalans would then be outside the single market and free movement wouldn’t apply.

The Euro has barely reacted to this fresh political upheaval which illustrates perfectly the difficulty of trying to bring together such diverse political, social and economic countries together under one umbrella. The single currency has stabilized above support at 1.1640 versus the dollar although as the reality of the Catalan vote with its subsequent consequences become clear, it is likely to fall further.

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Brexit still bringing muddled thinking.

There can only be so many opportunities for the Prime Minister and her Cabinet Ministers to produce salient, concrete proposals for the U.K. to leave the EU. Most recently we have had the “Florence Speech” which was supposed to provide the breakthrough to release the deadlock that has developed between David Davis and Michel Barnier. The outcome was far from what was necessary and if anything muddied the waters further.

This week sees the Conservative Party conference where unity was supposed to be the watchword. We have seen Boris Johnson; the Foreign Secretary produce a radical set of proposals which virtually guarantee a “Hard Brexit” then making a speech in which he supports “every syllable” of the Florence speech. If this wasn’t sufficiently confusing, David Davis has renewed the “no deal better than a bad deal mantra” by stating that the U.K. is prepared to walk away if no deal can be struck.

Traders have begun to grow weary of Brexit concentrating only on the effect of the various comments on monetary policy while studying macroeconomic data. The possibility of a rate hike continues to exercise debate although last week’s GDP data, with Q2 falling back to 1.5%, should have given Mark Carney cause for concern. Inflation is supposed to peak at 3% this month and the release of the BoE’s inflation report on the same day as the next MPC meeting on November 2nd will make interesting reading.

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Alan is a highly experienced banker with an in depth knowledge of Corporate Banking, Treasury and Trade Finance. He has had a varied career in Global markets, Risk management, FX Trading and Sales & Interest Rate Management. He has managed sales teams mentoring his team in both markets and marketing.He has been published in a number of journals and has appeared daily on radio to discuss market movements and events. His first novel was recently published.