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Turkish lira – the catalyst of trade war

Published August 13, 2018

Author: Dennis Li

The Turkish lira sell-off last Friday sparked global safe haven bids which boosted the USD while the risk-off momentum dragged the Aussie down by more than 1% against the greenback and ended last week just above the key support level of 0.7300. Early this morning we saw the low of 0.7251 which doesn’t auger well for the rest of the week.

  • The Turkish lira has long been falling on worries about Turkish President Erdogan’s influence over monetary policy and worsening relations with the US before the sell-off accelerated after US President Trump said Washington would double down on steel and aluminum sanctions against Turkey. The currency fell more than 20% at one point , the biggest one-day fall since the 2001 financial crisis in Turkey.
  • As a plunging Turkish lira sparked broad risk aversion the Euro sank to a one-year low against the USD breaking below support at 1.1400 with investors worried about a contagion effect on European banks and rushing into the USD. With the AUD suffering a similar impact the AUDEUR experienced little movement from the 0.6400 level last Friday Sydney time.
  • The US consumer prices rose by 2.4% in July and the underlying trend continued to strengthen reflecting a steady increase in inflation pressure that keeps the Fed on track to a gradual rate hike in 2018.
  • The Japanese GDP from last Friday show the country’s economy grew more than expected in Q2 while the global trade tensions loom as major risk to the export and investment outlook.
  • The British GDP released from last Friday also showed the UK economy picked up some speed in Q2 but starting to lose momentum  in June with political worries about Brexit negotiation keeping the sterling under pressure.