Lira Rallies on Cut in Swaps, Fails to Dent Broadbased Dollar Demand

  • The Turkish lira is extending yesterday’s recovery today on the back of actions by officials that are aimed at limiting foreign access to the lira to short
  • If the lira’s dramatic plunge hit other markets, its recovery appears to have gone largely unnoticed
  • After a quiet couple of days, the US economic calendar is chock full today
  • Bank Indonesia delivered a hawkish surprise
  • Argentina July CPI is expected to rise 31.2% y/y

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Brief Respite but Little Relief

  • Corrective pressures grip the capital markets today, helped by the easing of the selling pressure on Turkey
  • Favorable European economic data was insufficient for the euro to hold on to even modest upticks
  • Nor was the UK data enough to deter selling into sterling’s gains
  • Disappointing Chinese data could not send the yuan lower, though Chinese equities are a different story
  • Turkey may not be a systemic shock to the EU, but it is still a new headwind
  • Argentina’s central bank hiked rates 500 bp to 45% yesterday; Poland, Czech Republic, and Hungary reported Q2 GDP

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Drivers for the Week Ahead

  • One of the key questions facing investors is whether Turkey is the canary in the coal mine the way Thailand was in the 1997-1998 Asian Financial Crisis
  • While our outlook for the dollar remains constructive, it is over-extended
  • The US retail sales report Wednesday may be the most important data release this week
  • The UK reports employment, inflation, and retail sales in the coming days
  • Minor measures were announced by Turkey as pain threshold has not been crossed yet
  • EM FX is coming under greater pressure as the situation in Turkey deteriorates

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Profit & Loss Video: A Different Kind of Alpha

Jay Moore, BBH’s Global Head of Currency Administration, was a panelist at the 2018 Profit & Loss Forex Network conference held in New York City on May 24. Jay made the case that providers of passive currency administration services can set themselves apart beyond achieving the basics of risk management by preserving fund performance, a form of “operational alpha” for their clients. 

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Sterling Remains Under Pressure, Greenback Firms Broadly

  • The RBNZ pushed out by a year to Q3 2020 when it expects a rate hike may be appropriate
  • CAD staged an impressive recovery yesterday from a sell-off spurred by an escalation of the diplomatic dispute with Saudi Arabia
  • The economic calendar in North America picks up today as the US reports weekly initial jobless claims, PPI, and wholesale trade and inventories
  • EM FX remains broadly under pressure, with noteworthy underperformance by RUB and TRY
  • Philippines central bank hiked 50 bp to 4.0%, as expected
  • Mexico July CPI is expected to rise 4.79% y/y; Peru central bank is expected to keep rates steady at 2.75%

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Sterling Sold While Dollar and Yen Catch a Bid

  • Fears that the UK could leave the EU in a little over six months without an agreement continue to drag sterling lower
  • The US announced that the 25% tariff on $16 bln of Chinese goods will go into effect August 23
  • China reported its July trade figures today
  • RBNZ is widely anticipated to remain on hold today; BOT kept rates steady at 1.5%, as expected
  • Brazil IPCA consumer inflation is expected to rise 4.41% y/y

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