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Turkish Lira slide rattles markets.

By Jake Trask

GBP/USD dropped under 1.28 early this morning as a report in the Financial Times on the economic health of Turkey rattled the markets. The article reported that the Eurozone’s chief financial watchdog had raised concerns over EZ lenders exposure to the country whose currency has devalued by around one third over the past year. USD/TRY has jumped from 5.0 through 6.0 since the beginning of August as concerns over Turkey’s deficit, inflation and its deteriorating relationship with America see investors flee. Turkish PM, Recep Tayyip Erdogan has been at loggerheads with America since seeing off a coup two years ago during which an American priest, Andrew Brunson was arrested for allegedly “supporting terrorism.” Cable is currently at 1.2760 its lowest level since its lowest level since June last year as investors flee the fragile pound and head for the safety of the dollar, yen, gold and US Treasury’s. Away from geopolitics we finally have some UK data to report with Q2 GDP hitting target at 0.4% and UK Manufacturing Production slightly beating estimates at 0.4% m/m for June/July.

The dollar is up this morning as the FT report mentioned earlier has seen investors flee risk and park their cash in the usual safe havens. EUR/USD has fallen to around 1.1450 its lowest level since July last year as concerns over the crisis enveloping Turkey may hit some of Italy, Spain and Frances biggest lenders. The greenback is up against most of its trading peers however USD/JPY is yo-yoing as investors weigh up where to park their cash as a positive Japanese GDP print (0.5% for Q2 vs exp 0.3%) somewhat confuses the picture. It appears the yen is winning over investors as it currently heads down towards 110.50. US PPI numbers missed target yesterday as prices held steady month on month at the factory door. Today sees CPI numbers at 1:30pm with a monthly uptick of 0.2% predicted.

The euro has been dumped this morning as investors weigh up the likelihood of European lenders struggling to reclaim Turkish loans in the face of the Liras collapse. EUR/USD trades around 1.1450 having been around 1.16 this time yesterday highlighting the jitters the FT story has caused. EUR/JPY move has been just as sharp dropping from around 129 to 126.9 over the past 24 hours. GBP/EUR spiked this morning rallying towards 1.12 before retracing to currently sit at 1.1135 ahead of another quiet day from the Eurozone.

The Aussie and all other risk assets have been dumped this morning with AUD/USD dropping from .7440 yesterday to currently sit around .7305. Adding to the sell off for the Aussie was a downgrading of Australia’s inflation expectations by the Reserve Bank of Australia in its latest Monetary Policy Statement. The bank sees year end inflation being around 1.75% down from the 2.25% predicted in its last report three months ago. The RBA targets inflation of 2-3% so this undershoot (should it come to fruition) will mean the bank is less inclined to raise rates in the first half of next year. GBP/AUD is at 1.7460.

USD/CAD popped through 1.31 this morning as the loonie was sold off along with the other commodity assets. This afternoon sees employment figures from Ottawa with the level of unemployment expected to drop to 5.9% from 6.0%. GBP/CAD is at 1.6720.

The situation in Turkey has meant USD/NZD has hit another multiyear low dropping to .6580 as investors flee the kiwi. Holders of the local dollar will be hoping there is no more bad news re: US – China/Turkey to unsettle the markets further. GBP/NZD is at 1.9370.