Global Themes

Rising tensions between the US and Turkey and the knock-on-effects this is having across many currencies has been dominating the headlines over the weekend. US President Donald Trump on Friday increased the pressure, by doubling tariffs on imported steel and aluminium, to 50% and 20% respectively. Turkey’s President Recep Tayyip Erdogan made a strong speech on Friday instructing people to sell their foreign currency and gold and buy the Turkish Lira to help support and strengthen the local currency and hopefully the economy. However, the lira’s free fall continued, which is now over 75% down this year against the USD. The European Central Bank (ECB) became alarmed about the eurozone’s banks’ exposure to the lira and this concern saw the Euro then weaken significantly against the dollar dragging EUR/USD to fresh 13-month lows.

It’s a thin schedule on the US economic calendar this week, with retail sales and industrial production data on Wednesday the only notable releases. Attention will remain on the Turkey crisis and for any new communique that could pave the way for further dollar buying. The US Dollar index, which measures the strength of the dollar against a basket of currencies, is up at levels not traded since July 2017.

EUR

The Euro has suffered in the face of the risk-off market sentiment thanks to the overwhelming Turkey crisis. The Turkish lira dropped to all-time lows against multiple currencies and due to the complexity and interdependency of financial markets, the ECB’s concern that eurozone banks in Spain, Italy and France could face troubling times due to their exposure to Turkey’s woes. Investors’ appetite to buy the Euro is consequently waning.  Data from the eurozone this week includes Q2 GDP from the bloc, German ZEW surveys and industrial production all released on Tuesday morning. The Eurozone’s July inflation figure is also revealed on Friday morning, which could help support the fragile single currency as the annualised figure is expected at 2.1%, a tick higher the June’s 2%.

GBP

Last Friday, UK Preliminary GDP came in line with forecast at 0.4% for Q2, which helped buoy Sterling for a spell. However, the terrible week endured by the British Pound has left GBP/USD trading this morning at 1 year lows. GBP/USD has notched five consecutive weeks of declines, falling close to 5% over that period. The last time Sterling lost on such a consecutive basis was during the December- Jan period between 2014/15 in the build up to the last general election. GBP/EUR will continue to be steered by EUR/USD and with many global geo-political events dictating this, we could expect short term volatility to remain, despite UK Government summer recess still in play.

This week we have the usual run of UK economic data in the format of inflation, average earnings and unemployment. The releases start on Tuesday with UK unemployment and average earnings. Both sets of data are forecast to be unchanged for the period of June at 4.2% and 2.7% respectively. UK inflation will be released on Wednesday and retails sales on Thursday.

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