Global Themes

  • UK jobs market in focus
  • Turkey crisis update
  • Data dump to support the Euro?


UK jobs market in focus

This morning at 9:30am, UK data on jobs and earnings will be released. The ILO unemployment rate is forecast to remain at historic lows of 4.2% for the period of June and average earnings are expected to remain the same at 2.5% for the same period. Usually these data releases would have more focus, but with larger geo-political issues at hand, the resulting FX move after these releases could be minimal to negligible. A muddying horizon of major political events has skewed traders to protect themselves against potential further downside moves in the pound. A recent Reuters report has highlighted that some banks see markets at the early stages of pricing in a hard Brexit and a recent Reuters poll shows that the risk of a no-deal has risen to 25% from 20% back in July.

From a corporate perspective, hedge funds have been busy protecting positions and themselves against further Brexit fears. Three-month GBP/USD risk reversals - a measure of put-call FX options used as a sentiment guide - have fallen to their lowest levels since January 2017, demonstrating that demand for ‘puts’ (right to sell GBP) is soaring.

  •  This morning, Sterling has bounced from 13-month lows making a run for the $1.28 mark against the US Dollar. Recent lows in currency pairs could give speculators an opportunity to buy the dip, but in the longer run the trend still points to further downside. GBP/EUR hovers below that €1.12 handle, what was once the floor of a trading range has now flipped to become a ceiling, limiting convincing moves beyond here. Even if UK data this morning pushes it higher, traders could use it as an excuse to sell the pound on any rallies.


Turkey crisis update 

In the wake of the turmoil in Turkey, the US Dollar index, measuring the strength of the dollar against a basket of major currencies, climbed to a fresh 14-month high above 96.5 yesterday. Nervous investors also flooded into safe-haven assets like the Japanese Yen and Swiss franc, which were the only G10 currencies which appreciated against the USD. On the opposite end of the spectrum, the risk-off appetite across markets meant investors dumped higher yielding and higher risk assets such as emerging currencies like South Africa’s Rand and Mexico’s Peso. The spike in global risk aversion saw GBP/ZAR shoot to near 2-year highs around R19.5 yesterday, but the pair has sharply reversed back towards the R18.0 handle today.

  • The Turkish Lira will remain in the spotlight, as the mammoth circa 30% decline in the last few days has drastically unsettled global markets. Turkey’s central bank has confirmed it will provide liquidity despite President Recep Tayyip Erdogan denying that economic fundamentals were to blame and that lower interest rates were needed to combat higher inflation. Some economists have argued that rates should be hiked another 1,000 basis points to 27% to prevent the Lira plunging even further (source: Guardian).


Data dump to support the Euro? 

A swarm of data from the Eurozone sweeps across the markets this morning, with German inflation and Q2 GDP figures already supporting what has been a troubling week or so for the Euro. Despite Q2 GDP from the bloc’s largest economy coming in short of the 2.5% y/y forecast, the 2.3% result shows the economy is still expanding. This defied the concern around the ongoing global trade tensions, particularly between the US and the European Union. At 10:00am today, overall GDP data from the Eurozone for the second quarter of this year is forecast at 2.1% y/y unchanged from Q1 growth. Industrial production, released at the same time, is expected at 2.6% for the month of June, up from 2.4% in May.

The Euro has suffered amidst the heightened uncertainty around the Turkey crisis, which pressured EUR/USD to new 13-month lows in the mid $1.13 zone yesterday. The pair now navigates back above the $1.14 level and could push higher should the macro data beat estimates, but conversely drop back beneath if the data disappoints. Although the eventful European docket could provide some further respite for the struggling Euro, any more worrying developments from Turkey could pave the way for further weakness in the single currency.

  •  EUR/USD has fallen over 3% in August alone; the concern raised by the European Central Bank with respect to the banking contagion risk increasing from Turkey’s turmoil, could indeed skew the pair’s directional risk further to the downside.

*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

Deliver the Daily Currency Market Analysis to my Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.