The
Lira had advanced as much as 3% at time of writing with the currency currently
standing as the only emerging market to be trading higher against the USD. The
improved sentiment in the Lira is likely linked to confirmation of continued
political leadership in Turkey.
There
will be some underlying concerns over whether this buying momentum for the Lira
could actually last, especially when you consider that fears over the
repercussions of an Erdogan victory had been one of the primary drivers behind
the collapse in the Turkish Lira over the first half of 2018. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
There is every possibility that the rally in the Lira could be temporary. The
currency has weakened beyond 20% during the first half of 2018, with one of the
main contributors behind the Lira weakness being that Erdogan had promised to
become an influence in economic matters and central bank policy if he won the
election.
Whether
the Lira can actually maintain its strength over the next couple of days will
be somewhat reliant on how international investors react to the news that
Erdogan will have an extended rule of power in Turkey. Investor confidence in
Turkey has suffered in the aftermath of fears that central bank independence
would be at heavy threat in the event of an Erdogan victory, and it will take
some serious convincing for investors to move back into Turkish assets.
The
possibility that the impressive rally this morning in the Lira could just be
temporary shouldn’t be ruled out. I would expect for investors to closely
monitor the developments in Turkey over the upcoming period. If there is an air
of calm within Turkey it would be seen as a positive for the Lira, however any
reports that the central bank will be instructed to significantly lower
interest rates would be seen as a major threat for the currency. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
The
other major headline in the FX markets is news of the Chinese Yuan weakening to
its lowest level since December 2017. Fears over the possible ramifications
that a trade war between the United States and China would have on the Chinese
currency appear to have encouraged the Yuan to withdraw its previous gains in
2018 against the Dollar. The Yuan has now lost nearly 0.3% year-to-date, where
it was previously seen as one of the best performing emerging market currencies
this year.
There
is speculation that the People’s Bank of China (PBoC) might be deliberately
weakening the Yuan in an effort to strengthen the Chinese economy, in the event
that the world’s two largest economies do actually get involved in a trade war.
The central bank reduced the reserve ratio requirement for commercial banks by
half a percentage point over the weekend, which some have attributed to
providing the local economy with some ammunition should the trade war concerns
with the United States intensify.
Elsewhere
and in a week where political risk will still likely play a leading role in
driving market sentiment, an exception to this rule will be traders keeping a
close eye on a scheduled speech from Bank of England (BoE) Governor, Mark Carney, this coming Wednesday. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
Any comments on the future direction of UK interest rate policy will be
particularly observed by the financial markets, after the Monetary Policy
Committee (MPC) unexpectedly voted 6-3 to keep interest rates unchanged during
the most recent policy meeting.
The
news that BoE Chief Economist, Andy
Haldane, had unexpectedly voted for a UK interest rate increase in June has
revived optimism that the BoE might be closer to raising UK interest rates than
anyone would expect. This optimism has also encouraged the GBPUSD to rebound
away from its lowest level this year.
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