Global Themes

12 days of losses for GBP/USD
- GBP/USD extends losing streak
- Troubled currencies in Turkey crisis
- Euro boosted by Lira recovery

GBP/USD

GBP/USD extends losing streak
Sterling nosedived to a new 14-month low against the US Dollar yesterday, clocking a twelfth day of consecutive losses and adding to its longest losing streak since August 2008. GBP/USD looked to be on route to test $1.26 before scaling back towards $1.27 ahead of the closing whistle. This morning, the currency pair looks poised to break this daily downtrend as traders await the important UK retail sales data for the month of July. Retail sales will be released at 9:30am this morning and are expected to increase 0.2% m/m in July, up from the shocking June figure of -0.5%, which hurt Sterling last month. A strong reading today, which could possibly occur due to the sunny weather over July, could give Sterling an additional boost and lift GBP/USD back into the mid-$1.27 zone. GBP/EUR reversed its uptrend yesterday, closing back under €1.12, but could attempt another run if the data surprises positively.

Alternatively, the British Pound could come under further selling pressure if the data fails to impress and GBP/USD could crumble back under $1.27 and resume its daily downtrend. Last month’s retail sales figure did little to inspire market participants despite World Cup fever hoping to give the number a boost. A weaker print today could drag GBP/EUR towards new 2018 lows beneath €1.11, especially if the Euro continues its recovery.

Yesterday’s consumer price index from the UK saw inflation at 2.5% y/y in July, a nudge up from 2.4% in June, and the first rise in prices this year. Earnings data this week indicated wages are rising at their slowest rate in nine months, at 2.4%, which could pressure the Bank of England to intervene should inflation continue to outpace wage growth in the future.

Turkey

Troubled currencies in Turkey crisis
Despite Qatar coming to Turkey’s aid yesterday allowing the Turkish Lira to stage a valiant recovery, the sell-off of emerging currencies continued and the US Dollar charged to new 13-month peaks. Qatar pledged to loan $15BN to Turkey to help soften the currency crisis and Turkey is said to be tightening regulations to prevent traders from shorting the Lira (source: Reuters). The risk-off market sentiment that has dominated over the past week has left many Japanese investors repatriating investments from the higher yielding but more risky emerging markets. Demand for the safe-haven Japanese Yen has thus been intensifying and GBP/JPY has plunged to a near 12-month low, before scrambling back above the ¥140 level last night. Emerging currencies continue to be dumped, with ZAR, RUB, BRL and CNH all depreciating significantly across the board. Moreover, selling has accelerated in other less attractive currencies too, including GBP, AUD and NZD, which are all feeling the brunt of the global market fear factor.

Investment flows into the US Dollar have left many Asian currencies weaker, with the Indian Rupee falling to record lows, exacerbated by worsening economic data of late. A Reuters report highlighted that India’s trade deficit widened to $18.02BN in July, the highest it’s been in over five years and USD/INR jumped to a new lifetime high as a result.

The surge higher in the US Dollar has left commodity markets wilting too. Commodities are priced in USD and due to the dollar appreciating in value, they too become more expensive, which keeps a lid on demand and so pressures prices lower. There has been a collapse in metal prices, oil and iron ore prices, which has left currencies associated with these commodities suffering as well. The Canadian dollar has been hammered by the weaker oil prices but Sterling has failed to capitalise as the ongoing Brexit worries keep GBP demand restricted.

EUR

Euro boosted by Lira recovery
EUR/USD is flirting with the $1.14 handle this morning after the Euro staged a strong rebound following its short glance below the $1.13 handle yesterday. The Euro managed to gain some traction as the intense risk-off sentiment subsided and Turkey looked to be making headway in stabilising the freefall of its Lira. After four consecutive weeks in the negative against the US Dollar, optimistic Euro traders will be hoping the single currency can gather some momentum and press above the $.14 level today.

The Euro has been subject to selling pressure due to the banking contagion fears unnerving the European Central Bank because of escalating turmoil in Turkey. The exposure of certain European banks to Turkey’s economic crisis caused the Euro to depreciate in value and EUR/USD extended its August decline to 3.5%.

German Chancellor Angela Merkel has also suggested resolving the differences with Turkey and assisting with its economic woes to help avoid a financial meltdown.




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