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Markets shun risk as Turkish Lira sinks to new lows

By Jake Trask

GBP/USD remains under pressure this morning after Fridays fall on the back of the erupting crisis in Turkey that saw investors dump the Lira and shun risk assets. Throughout the Asian session investors again sold off the Lira and sought out the usual safe havens of the yen, swissy and gold. USD/TRY briefly spiked above 7.0 overnight after trading as low as 5.55 during Fridays Asian session; this represents a drop of around 21% in 24 hours of trading, a bigger move than the pound felt in the aftermath of the Brexit vote. The ongoing row between President Erdogan and President Trump has hit investor confidence in the country that bridges the gap between Europe and Asia with fears over the situation hitting other currencies such as the South African Rand and Mexican Peso as well. Stock markets around the world trade lower again highlighting the flight to safety. In other news, Friday saw the UKs Q2 GDP print come out on target at 0.4%. At the same time Manufacturing Production m/m beat estimates at 0.4% and Prelim Business Investment also printed in the green at 0.5% q/q. Despite the sold set of figures the pound barely moved as traders focus was caught by the deteriorating situation at the eastern end of the Mediterranean. GBP/USD currently hovers around 1.2750 ahead of a quiet day data-wise.

The dollar remains well bid this morning as the fears of contagion from Turkey spreading seeing traders seek the safety of the greenback. Helping the dollar’s gains has been further falls in the euro as Eurozone bank’s exposure to Turkish debt startles holders of the shared currency. Only the yen has made inroads overnight with USD/JPY heading back towards 110 as the ultimate safe haven currency heads towards a one month high against the dollar. Efforts by President Erdogan to diffuse tensions and instill confidence in the lira on Friday in a public address did little to help the situation. He called on Turkish citizens to convert foreign currency and gold to lira in an effort to stablise the currency. Rather than ameliorate the situation the speech saw USD/TRY spike from 6.2 to 6.8 as the ranting diatribe did little to calm nerves. Any more speeches from Erdogan or comments from Trump will be this weeks key areas of focus. A short time ago news emerged that the Turkish Central Bank had advised it was willing to take “all necessary measures” to prop up the Lira and provide liquidity to local banks.

The euro sell off continues this morning as ongoing concerns over EZ bank loans to Turkey rattle investor confidence. EUR/USD has dropped to a low of 1.1370 this morning its lowest level since June last year. As recently as Thursday last week EUR/USD was trading around the 1.16 handle with the sharp drop highlighting how rapidly events on the EZ’s eastern fringes have developed. EUR/CHF has fallen sharply to around 1.13 at present as has EUR/JPY which is down to 125.3 whereas it was at 129 as recently as last Thursday. GBP/EUR trades at 1.12 ahead of a day devoid of data.

The Aussie has been pushed lower by events in Europe since Friday morning. AUD/USD has fallen through .74 and .73 to currently sit at .7270 as the commodity currencies get hit by risk aversion. It’s unlikely the one event of note from Down Under, Wednesday nights employment numbers will do little to lift the local dollar if tensions re: Turkey continue through to midweek. GBP/AUD is at 1.7515.

Like the Aussie the loonie has been sold off over the past couple of trading sessions. USD/CAD has rallied from around the 1.30 handle to its current level of 1.3165. Domestically, it’s a quiet week from Canada with only Fridays CPI number likely to drive the local dollar. This will likely take a back seat should the crisis in Turkey rumble on until the end of the week however. GBP/CAD is at 1.6775

NZD/USD remains close to a two year low around the .6575 level at present. With no data from NZ this week the local dollars fortunes will be determined by events on the other side of the world. GBP/NZD is at 1.9375.