t appears that the Republican leadership and the Trump administration are converging towards some sort of tax-cutting fiscal package. Even though their track record so far is not encouraging, it is clear that the mere possibility that it will pass is enough to push the Dollar higher in a market that had priced this eventuality out entirely. Last week’s rally was convincing and broad based, and the US Dollar rose against every G10 currency and every major emerging market currency, with the sole exception of the Russian Ruble.

The main risk event in the currency market this week is the US payrolls report on Friday. The headline number will be affected by the hurricanes that hit the US and markets will probably look through them as they will add little information. The wage growth numbers will be more meaningful, and the Federal Reserve will hope for firming up of wage increases in order to help it realise its inflation forecast. Aside from that, political risk in the Eurozone from the Catalan referendum fallout and efforts to line up a coalition Government in Germany will provide some headline risk for the Euro.

Major currencies in detail

GBP

There was very little in the way of macroeconomic or policy news out of the UK last week. GDP growth was revised slightly lower, but this is a backward looking measure and had relatively little impact on the Pound.

This week should be a similarly quiet one with the main risks coming from the Conservative Party conference, which will add headline risks. However, we regard recent noises in support for a transition period after the Article 50 deadline to be supportive for the Pound, and we expect the recent bounce back against the Euro to continue.

EUR

In addition to the rebound in US yields on hopes of a tax-cutting package there, the Euro was weighed down last week by the return of political risks across the Eurozone. The surprisingly good result by the extreme right in Germany and the disastrous showing by the social democrats forces the latter into the opposition. Chancellor Merkel will have to form an uneasy coalition with liberals and greens. The escalating conflict between Madrid and the Catalan regional government over the latter’s call for a referendum did not help matters.

Markets will scrutinize the minutes of the last ECB meeting on Thursday. Aside from that, headline risks from Spain and Germany pose downside risks to the common currency.

USD

A light data week was dominated by political and policy news in the US. Republicans appears to be moving close to a tax-cutting package focused on lowering corporate rates, although their recent dismal legislative performance means that skepticism is in order.

Federal Reserve officials continue to hint that an interest rate hike will be forthcoming at the December meeting, highlighting the large gap between market interest rates and the Fed’s own forecasts. As the rate differentials between the US and the Eurozone continue to widen, we expect the Dollar to remain well supported.