Turmoil in Turkey
Sterling is seen to be on the delicate side this morning after weakness over the past couple of weeks, which has sent the GBPUSD to a yearly low of around 1.2750 and GBPEUR under the 1.1200 mark.
The major basis for the shift lower in GBP lies with the standard underlying Brexit concerns, however, after the US imposed damaging tariffs on Turkey, we’ve seen a further shift down.
Monday’s economic calendar is quiet in the UK, and traders are going to be focused on Brexit headlines for the day, as well as the new Turkey developments. The market will also keep its eye on Tuesday’s Average Earnings figures in the UK, which will come out at 9:30 A.M. tomorrow morning. Average Earnings, excluding bonuses, is forecast to come in at 2.6%, versus the previous 2.7%. Average Earnings, with bonuses, is expected to remain steady at 2.5%.
Last week was dominated by the Turkish Lira as it hit a new record low. President Erdogan ruled out an IMF bailout, despite a 27% week-on-week fall in the currency. What this means is that there is a continued sell-off on Euro banking stocks, which will more than likely mean a negative open to trading and therefore a low EUR.
The ECB announced it was concerned about the exposure of Eurozone banks in Turkey, which pushed the Euro to Dollar rate below 1.1500. The most important factor to look out for this week will be how the Turkey situation plays out.
The only data out today is Italian CPI data, but not much volatility is expected here. The rest of the week looks more interesting from a data perspective, so in the next few days we can expect some volatility in the EUR. However, as mentioned previously, the biggest factor will be the Turkish situation, the reaction of the Eurozone banks, and the reaction of the ECB.
The Dollar continued to rise over the weekend, after turmoil continues in Turkey, which in turn has lifted the greenback to yearly highs against a basket of its rival currencies.
The story began last week when Trump doubled tariffs on US imports of Turkish steel and aluminum. This unexpected tactic was aimed to force Turkey, a NATO member nation, to release the US citizen and Pastor Andrew Brunson after courts had rejected appeals to release him. The return of risk aversion over Turkey and the reflection this had over major European banks sent traders piling back into the US Dollar.
We see no relevant releases in the US docket, which will leave all the attention on the Turkish Lira.
Data to watch:
09:00 ITA Consumer Price Index (YoY) (Jul)
09:00 ITA Consumer Price Index (EU Norm) (YoY) (Jul)
09:00 ITA Consumer Price Index (MoM) (Jul)
09:00 ITA Consumer Price Index (EU Norm) (MoM) (Jul)