Global Themes

Political talks to dominate; the week ahead
- Brexit dialogue to drive Sterling this week
- Turkey’s Lira issue far from over
- Greece finally end bailout programme
- Jackson Hole Meeting and Fed minutes


Brexit dialogue to drive Sterling this week
The British Pound will likely remain sensitive to Brexit-related updates expected this week, which kick start with Brexit minister Dominic Raab’s trip to Brussels on Tuesday. Mr Raab will meet the European Union’s (EU) chief negotiator, Michel Barnier in the hope of speeding up the pace of Brexit talks to help formulate a successful exit from the EU. Mr Raab is also expected to make a speech on Thursday, outlining the government’s plans to combat and alleviate any potential risks of a no-deal Brexit scenario.

Furthermore, on Thursday, the UK government will publish the first of a series of technical notices for leaving the EU without a deal in March 2019. The notices will include advice for businesses, citizens and public bodies, but despite an attempt to prepare for such a scenario, it has been clear that the risks and uncertainties that come with a no-deal result could punish the pound.

The downtrend in GBP/USD over the past six consecutive weeks has been the longest weekly losing streak for Sterling against the US Dollar since 2014. The worries about whether Britain can reach a trade deal with the EU to avoid a disorderly Brexit continue to unnerve investors, who remain cautious trading the pound. This GBP-negative sentiment has been reflected in GBP/USD, which also clocked its longest daily losing streak since the financial crisis in 2008, plunging to as low as $1.2662 last week, over 3% lower since the beginning of the month. Against the Euro, the familiar trading range remains intact, with €1.1150 holding firm this morning. Despite the trouble in Turkey weakening the Euro, the pound failed to capitalise, and GBP/EUR still ended last week in the red for the third week running.

Most of the key economic data from the UK has already been released this month, but CBI industrial trends and CBI distributive trades surveys will be released on Tuesday and Thursday respectively. The main focus this week though is Brexit, and the pound could be vulnerable to further downside if no positive developments evolve.


Turkey’s Lira issue far from over
The Turkish Lira held steady over the weekend, despite credit rating agencies Standard & Poor’s and Moody’s downgrading Turkey’s sovereign credit ratings deeper into ‘junk’ territory. Since the beginning of the month the Turkish Lira against the US Dollar fell close to 50% before the banking regulators in Turkey stepped in to allow the lira to appreciate circa 18% back from its lowest point. Banking regulators have intervened and reduced liquidity in trading currency markets, effectively halting investors from holding ‘short’ positions. A concern with this intervention is that those who wish to hold local Turkish assets cannot hedge against the local currency, which in some instances will either deter potential investors or cause current holders to close out existing positions. 

Either way, the current short-term solution may come back to haunt the Turkish economy, hence the rating agencies expect a recession next year. The exposure of the EU to Turkey may continue to add further clout to the bloc’s investing appeal. A week-long public holiday in Turkey could come at a pivotal time to give its currency market a slight breather.


Greece finally end bailout programme
Greece has finally seen the end of its 3rd bailout programme from the European Central Bank (ECB) and International Monetary Fund (IMF). Though market reaction has been minimal, this is a historic moment for the small nation which has been on the brink of leaving the EU due to its financial situation on multiple occasions. This concern should put some Euro investors at ease and help with the perception of other ‘PIGS’ nations, those countries which have been scrutinised for their interactions with the EU.


Jackson Hole Meeting and Fed minutes
This Thursday, the annual Jackson Hole Symposium will take place, where there will most likely be a significant focus on the global trade tensions and possibly mentions of the expected remaining interest rate hikes from the Federal Reserve this year. The US Dollar index has stabilised this morning after falling away from this year’s high, hovering just above the 96 handle this morning. EUR/USD floats above that $1.14 level but it is struggling to ascertain any clear directional trend. The pair found support at the $1.13-mark last week but struggling to push past the $1.1450 mark. There has been confirmation that China and the US will hold talks with one another on Wednesday and Thursday, which could give investors hope that the two nations can resolve their ongoing trade dispute.

Wednesday will also be a day in focus for US investors as minutes from the most recent Federal Reserve meeting will be released. The meeting at the beginning of the month was a relatively hawkish one, signalling more rate hikes from the Fed later this year. The minutes this Wednesday could give insight into which particular economic indicators the Fed will pay focus to, which again could prompt another round of dollar buying.

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