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2018-08-13
Turkey gets an early roasting

The currency markets closed last week on the verge of panic. For anyone with an exposure to the Turkish Lira, that is probably the understatement of the century given that the currency fell 26% against the dollar last week (although at one point, it was down as much as 34%!). Trump grabbed the headlines on Friday by announcing that he will double the US import tariffs on Turkish steel and aluminium, but that is only part of the story. At quick look at the chart below shows that the Lira has been in steady decline since early 2011 amid political uncertainty and rampant inflation.

 

Chart 1 – USDTRY 2009 – 2018

Source: Bloomberg

 

We could spend hours looking at Turkey in more detail, but for most of our readership, the bigger question is whether this could lead to contagion, not just into the rest of the emerging market space, but given the escalation...



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2018-08-06
The MPC has hiked. What next for interest rates?

Last Thursday saw the Bank of England vote unanimously 9-0 in favour of raising the base rate to 0.75%; only the second rate rise for more than a decade and the first time the rate has been above 0.50% since March 2009. In addition, no changes were made to the BoE’s quantitative easing program. The hike marks a watershed moment that puts the UK economy on the path to monetary policy normalisation.

 

Markets were already pricing in a 90% probability of a rate hike prior to the meeting so it was no surprise when Sterling jumped against the Dollar to 1.3124 on the announcement that there was going to be a rate hike; essentially pricing in the remaining 10%. What caught markets off guard however, was the fateful words of Mark Carney saying: “policy needs to walk not run to stand still”. This sent cable eventually down more than a cent...



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2018-07-30
Can Trump stop the dollar?

China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day - taking away our big competitive edge. As usual, not a level playing field…

President Trump (via Twitter), July 20th, 2018

 

 

I am a low interest-rate person. If we raise interest rates and if the dollar starts getting too strong, we’re going to have some very major problems.

Donald Trump, May 5th, 2016

 

 

Janet Yellen should have raised the rates. She’s not doing it because the Obama administration and the president doesn’t want her to.

Donald Trump, November 3rd, 2015

 

 

2018 has seen the USD surge higher against both its G10 and emerging market peers, driven by a strong US economy and an increasingly hawkish Federal Reserve.  As Trump made clear earlier this month, whilst he is very happy with the first driver, he...



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