Dollar Softens as Trade War Fatigue Sets In OANDA MarketBeat

OANDA Senior Market Analyst Alfonso Esparza reviews the major upcoming market news, macro analysis and economic indicator releases that will impact currencies, stocks other asset classes.

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The dollar bounced back on Friday, after a couple of economic indicator misses last week, the greenback ended higher against all major pairs but was back under pressure on Monday.

A slowdown in the pace of inflation, miss in retail sales expectations and a softer tone on trade from the Trump administration are the three major factors for the softness of the currency.

Interest Rate differentials are a positive factor for the the US Dollar but haven’t done enough to counter the trade war fatigue setting in.

Live FX analysis – 18 September 2018 (Video)

Senior Market Analyst Craig Erlam discusses the key market themes from the summer – most notably US tariffs and Brexit – and the events to watch out for this week.

Craig also gives his live analysis on EURUSD (17:48), GBPUSD (21:36), EURGBP (24:42), AUDUSD (25:44), USDCAD (28:33), GBPCAD (31:02), NZDUSD (32:41), USDJPY (34:16), GBPJPY (35:25) and EURJPY (36:31).

Asia closing market notes : riding the risk rollercoaster

The markets are riding the risk roller coaster as headline overload has been dominating the Asian session.

First, the USTR tariff announcement had a bit more sting than expected due to the graduated settings 10 per cent now then up to 25 per cent in January on 200 bln. Which suggests the US is looking to talk but also not the President is not willing to cede the upper hand.

Then it was a matter of confusion reigns as CHINA SAYS COOPERATION IS ONLY RIGHT CHOICE FOR CHINA, followed by CHINA LIKELY WILL NOT SEND TRADE DELEGATION TO WASHINGTON, which tugged risk every which way but loose and left trader chasing their tail most of the session.

Frankly, I’m still surprised by the level of complacency, but then again, this escalation was so telegraphed suggesting today’s playbook could not have been scripted any better. But I’m keenly focused in USDCNH and China equities as the market’s composure surely belies the groundswell that’s yet to come.

Oil markets are in a tug of war as Iran sanctions will continue to provide near-term support, while discussions around global demand in the wake of this morning tariffs and speculation of further OPEC supply increases should temper upside ambitions. But in the absence of any OPEC supply shift, Iran and Venezuela shortfall should ultimately push prices higher, at least for the near term.

Gold continues to trade in tandem with the USD but, but with traders still debating the next USD direction we could remain in $1190- $1210 range.

ON the currency front, The Euro is showing a spring step but failed again at 1.1720. The August high 1.1730 remains critical while significant support should come in around 1.1620. Frankly, the EURUSD is where the near-term US dollar (X JPY) battle lines are forming.

Draghi has shifted less dovish, and fear index around Italian risk is easing., but we still have that unmistakably hawkish Fed here former dove like Lael Brainard continues to sound unmistakably hawkish every time she takes the podium.

Seeing the forest for the trees

Seeing the forest for the trees

With trade war dominating the landscape, even more so after this morning’s US tariff headline, it’s easy to focus on markets from a one-dimensional perspective. But cross-asset trading is multidimensional and observing the more granular details can offer much-needed clarity in these difficult times.

US Markets

Certainly, Trade war worries are talking their tool on global equities with even the Teflon US markets showing some fraying at the edges. But today’s compass suggests trade-related global equity weakness is due to tech, as opposed to emerging markets or China. Apple, for example, does a booming bilateral business with China and with investors veering to the notion that recent weakness in U.S. tech is a result of administration earlier tariffs then a 200 billion wallop is being perceived particularly damning even for the remarkably resilient US heavyweights in the tech sector.

Ultimately equity markets remain in wait an see as big unknown remains Chinas response which will set the tone for risk sentiment. After all, much of this tariff headline was well telegraphed.

We know China can’t go tit for tat as they don’t have enough US goods to tax. So, if there is a more heavy-handed approach such as flat-out import restriction or overtly weakening the Yuan, it could certainly bring the big market bears out of hibernation.

With the US  implementing a graduated tariff hike, starting with 10 % on 200 billion and moving to 25 % at the start of 2019. The ball is clearly in China’s court. While the   US tariffs salvo is hardly middling, it’s not a bad as it could have been, so unless China hits with draconian measures, markets should remain supported after this morning knee-jerk reactions. Ultimately the graduated tariff hike allows more room to negotiate before the thumping 25 % levy gets triggered, so perhaps China may temper their response accordingly.

Smartwatches and Bluetooth devices were removed from the tariff list, suggesting the President is “watching” the market while taking the US heavyweight giants and US consumer under consideration.

Oil Prices
Iran sanctions will continue to provide near-term support, while discussions around global demand in the wake of this morning tariffs and speculation of further OPEC supply increases should temper upside ambitions.

Oil futures posted a minor loss on Monday. After finding some support from potential global supply losses among various OPEC countries (Iran and Venezuela). But prices eventually gave way and are tracking the CRB index lower pressured on the prospects that US tariff will negatively impact global demand.

Also, Washington continues to suggest that Saudi Arabia, Russia and the United States can raise output fast enough to offset falling supplies from Iran.

The September 23 OPEC+ meeting in Algiers is taking on a bit of life of a life of its own as what was initially thought to be a be a fundamental review of production data by OPEC’s steering committee has now turned into 20+ nation affair. Suggesting everyone wants a seat at the table most likely to discuss the supply disruption from Iranian sanctions, which is leading to speculation that further production increases will be presented at the meeting.

Gold Markets

Another case of rinse and repeat
A modestly weaker dollar and aggressive short-covering pushed gold above the $1200 teeter-totter level, this despite a more hawkish lean from Fed-speak last week. Besides, haven buyers continued showing some bravado felling more confident buying gold when the dollar is fading which is provided with a subtle tailwind for prices overnight as investors brace for possible more massive tariffs than what’s currently priced into the markets. But price action remains entirely dollar driven. So, what the dollar giveth the dollar taketh as USD haven demand is back in vogue post-trade announcement.

Further risk response will be dependant on China response.

Currency Markets

I am challenged not dollar bullish from a pragmatic US interest rate storyline. But of course, price action needs to be respected especially with the EUR veering towards 1.1700 again. The strong US economy suggests USD yields have further room to run. And when former doves like Fed Governor Lael Brainard, who I dare say, is starting to roost with the Hawks, it’s giving clear signals that this sitting Fed is more hawkish than the markets 2019 rates lean.

The Chinese Yaun 

The primary trade war currency hedge is back in play with USDCNH moving above 6.89 as the market awaits Chinas response. But seller should emerge given how quick the market response has been to take USDCNH higher and the uncertainty over Pboc’s next move.

Euro

With Trade ware dominating headlines early Monday morning it’s easy to overlook some basics shift in EU zone fear index with European Bank Index and CDS curve suggesting Italy’s risk premium is getting priced out the equation. Even Turkey, despite another currency wobble yesterday, is stabilising somewhat on the recent astonishing CBT rate hike. The diminishing fear factors could push Bund higher and provide support for the Euro.

Australian Dollar

The Australian Dollar has weakened on the 20 pips on the tariff news in consort with USDCNH moving higher as the Aussie will remain a G-10 proxy for China risk, so it’s susceptible to more headline wobbles in coming days especially China response which could be extremely crucial for risk sentiment. But so far, the Aussie reaction is pretty much following the tariff playbook.

We do have the RBA, but I suspect its unlikely to alter today’s negative Aussie lean.

Japanese Yen
Risk has wobbled on the Trade headline triggering some modest haven moves to the Yen. But volumes are light, as frankly market at his stage are not panicking as the bulk of this tariff headline was already factored.

Canadian Dollar

The Lonnie is sagging, but this is possibly more about positioning as the markets found themselves short around the 1.3000, and with the CAD $ Perma -bears failing to yield that level,  the tariff headlines have triggered more short covering. But moves toward towards 1.3100 will likely be faded as NAFTA discussion are still going on.

Malaysian Ringgit

The recent support for EM central banks (Russian, Turkey and India) is buffeting the EM complex.
The 200 billion in tariffs, while negative for regional sentiment, is not as impactful for the Ringgit as the currency remains relatively insulated due to domestic oil exports and improved term s of trade. But higher US interest rates do pose some significant concerns, especially if a more hawkish fed vs a more dovish BNM does come to fruition.

Battered and bruised

Battered and bruised

It was a tough week for the markets leaving many participants battered and bruised, but the great thing about this industry, is we get to do it all over again next week.

US 10y yields went on to test 3.0% Friday after a string of constructive  US data, and Fed speaks supported the market’s base case for the Fed to continue with gradual hikes through year-end. Beyond there, the Fed’s outlook remains in wait and see mode, but with US 10’s yields making a run higher, the pragmatic view supports the long USD with the AUD offering is the path of least resistance.

No surprise Trump reportedly wants to proceed with the pending tariff list of USD200bn against China amid resuming negotiations.

The never-ending ping-pong match around BREXIT continues, and the levels of market frustration are loud.

Welcome new Fed member. Mary Daly, who has been named the head of the San Fran Fed, effective October 1, meaning that Esther George will still cast a vote for the regional Fed in September. Daly was the market’s choice so no risk on the appointment.

ARS continued to struggle, despite the central bank’s non-stop attempts to support it after  “The expected disbursement of USD3bn from the International Monetary Fund to Argentina will be delayed until renewed negotiations conclude, according to an Economy Ministry spokesperson.”  Could this be a foreshadowing of a negative emerging market lean next week? So, with TRY way to expensive to short, traders could start to look at the weakest links in the chain with IDR and INR the leading candidates to express a bearish EM view.

CNH fell against USD on Trumps China tariff noise despite treasury secretary Mnuchin’s attempts to broker a trade deal with China. But USDCNH, even in the absence of trade war rhetoric, should move higher near term from the most fundamental of views.

USDCNH  remains at the epicentre of my USD views, but ECB President Draghi is playing down the risks posed by Italy’s fiscal situation, there is a definite tail risk for the EURO to crater on any Italy escalation. While Italian risk remains at the cappuccino in a coffee cup level, the EURO bears will be ready to seize the opportunity on any EU political wobbles.

But it would be sheer folly not keep an eye on the 1.1730 level which is the August high, and, on a break, we can move much higher. Draghi was much less dovish than most projected, so there is cause for the EURUSD to grind higher.

With USDJPY waking up from what feels like a 2-month slumber the BoJ meeting does take on a higher level of importance than many had expected. Its great having USDJPY back in the fold.

Oil Markets

Brent crude oil tested decent support level on Friday following up on Thursdays bearish shift in near-term sentiment driven primarily on the build in US oil products but trimmed losses into the close. While WTI dips remained supported by the larger-than-expected 5.3 million barrels decline in US inventories. But perhaps short covering as options on October WTI crude oil will expire on Monday probably influence given the markets lean. But with the risk-reward calculus not signalling a bullish setup for energy in general, in the absence of any supply disruption, the markets could struggle ahead of the OPEC meeting as oil producers were making a convincing argument that a likely downturn in the Global economy could hurt oil demand. Of course, this is from a soothsayer’s perspective. And while impossible to quantify these unknowns, what we do know it that the weaker EM currency profile would most certainly hurt consumers appetite at the tertiary level of the demand curve. But Chinese commodity demand has appeared not to be destroyed by the 25% US tariffs on $34bn as China continues to offset trade headwinds by upping fiscal spend.

In the wake of depleting oil inventories Baker Hughes US Crude Oil Drilling Rig Count hit +7 last week.

Gold Markets 

The string of positive US economic data on Friday supporting the markets base case Fed outlook, dented Golds appeal into the close. With US 10’s hitting the psychologically significant 3 % level on Friday, we could see more traders feasting with the Gold bears on Monday.

Trade Tensions Return as US Tariffs on China Lift Dollar

The dollar bounced back on Friday, after a couple of economic indicator misses this week, the greenback is higher against all major pairs. Major pairs and commodities are lower against the greenback ahead of the weekend. The American currency did not manage to overturn the losses posted during the rest of the week. On a weekly basis the USD is lower against all majors except the Japanese Yen.

A slowdown in the pace of inflation, miss in retail sales expectations and a softer tone on trade from the Trump administration were the three major factors for the softness of the currency.

Rate differentials also helping the USD. This week was mostly a non event for the Bank of England (BoE) and the European Central Bank (ECB). Although the Sept rate hike by the Fed is priced in, it also shows its the only economy with some momentum to even lift rates. Next up in the economic calendar are the Bank of Japan (BOJ) and the Swiss National Bank that are not expected to modify their monetary policies.

Euro Scored a Win on a Weekly Basis but Falls as Trade Tensions Rise

The escalation of trade tensions was a positive for the US dollar as investors sought a safe haven during times of uncertainty. As potential olive branches are put forward there is optimism that Canada will join the US-Mexico agreement and talks with China could lead to closing the gap between the two points of view on trade. US President Trump tweeted on Friday that the a meeting with China is no guarantee of anything and reports in the media suggest the $200 billion US tariffs are still on the table.

A September rate hike is still fully priced in, but the inflation and retail sales miss did slim down the probabilities of a follow up rate hike in December.

The American economic calendar is short on blockbuster releases with Washington development to guide markets as trade tensions have eased, but are far from resolved.



The euro rose almost 1 percent this week with risk appetite returning to markets and strong wage growth in Europe. The European Central Bank (ECB) did as expected and held rates signalling that it will end its QE program at the end of the year and continued to maintain interest rates low through the 2019 summer.

Investors were not given any new information and instead bought the currency on improved international trade environment. The olive branches are just now entering the picture, and ECB economists could not have predicted the timing as they also announced a downgrade of their economic projections, citing trade worries.

Upcoming European inflation along with service and manufacturing PMIs will bookend the economic calendar in the EU. The gap between interest rates will continue to grow as the U.S. Federal Reserve pushes on its tightening policies as growth fails to spark momentum in Europe.

Fed rate hikes are priced in into the USD, but signs of European slowdown or the US economy hitting a higher gear could be a gift for dollar bulls.

Canadian Dollar Awaits News on NAFTA as US Gets Tough on China

The Canadian dollar fell on Friday. After the Trump administration softened its stance on international trade, in particular by reopening trade talks with China, NAFTA optimism boosted the loonie. Traders did not feel confident in carrying over short dollar positions into the weekend and the greenback saw a recovery on Friday.


Canadian dollar weekly graph September 10, 2018

The loonie advanced 1 percent during the week and next week’s inflation and retail sales data on Friday are crucial for the fate of a Bank of Canada (BoC) interest rate hike. NAFTA headlines will roll in as the team of negotiations get back to work with the aim to add Canada to to US-Mexico agreement.

Expectations are mixed on NAFTA, as Canada seems ready to make concessions on dairy but the US and Mexico continue to press for a trilateral deal while also adding they are ready to forge ahead if its only a bilateral one.

China Tariffs Cap Rise of Oil as Growth Concerns Hit Commodities

Oil fell 0.35 percent on Friday compounding on losses seen on Thursday, but will head into the weekend with a 1.09 percent gain. Supply disruptions have lifted prices after the 2014, be it the Organization of the Petroleum Exporting Countries (OPEC) and major producers agreement to limit their output to weather and geopolitical disputes.

Hurricane Florence in the US was downgraded and with it the negative short term effect on potential disruptions. IEA reported today that OPEC is starting to ramp up production by 420,000 daily barrels more than making up for the impact that the sanctions on Iranian exports will have on supply.

Global demand for crude has not shown signs of recovery and if producers start pumping there is a risk that oversupply could once again bring instability to oil prices.

Geopolitical factors like the US-China trade tensions will continue to put downward pressure on crude prices as higher levels of protectionist measures tend to slow down global growth.

Yellow Metal Falls as Risk Aversion and Fed Rate Hikes Advance

Gold fell 0.46 on Friday after a bounce in the US dollar at the end of the week. Risk aversion has been the main dollar of US strength as trade war concerns could have a deep impact in global growth. Commodities have recovered this week after the Trump administration has softened its tough stance with China with bilateral talks to restart in a couple of weeks.



Friday’s move is also explained by investors limiting their exposures as the weekend approaches, given that geopolitical risk could rise at any moment. The move gave some breathing room to the greenback as it is on its way to erase the majority of its losses against the yellow metal.

OANDA Market Insights podcast (episode 31)

OANDA Senior Market Analysts Craig Erlam reviews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart.

This week’s big stories: Turkey rates rocket, Sterling up on Brexit hopes, Carney house price warning, Beijing welcomes trade talks offer.

Prospect of Sino-US talks lifts markets

China open to US invitation for trade talks

It’s been a more positive start to trading on Friday, with talks of new Sino-US trade talks potentially helping to lift risk appetite among investors.

Stocks in Asia ended the week on a high, with major indices recording gains of around 1% and those in Europe up by a slightly more modest 0.3% or so. US futures are roughly tracking those gains in Europe which potentially highlights the increased risk of a trade war for Asian markets compared to Europe and the US at the moment. Still, with Trump also apparently preparing to announce the next $200 billion of tariffs on China, who are responding with closer ties with US foe Russia, we are clearly not currently close to a resolution.

The US economy has been gathering positive momentum despite the risk of a trade war and today’s retail sales data is expected to provide further evidence of that, with spending expected to have risen by 0.4% last month. This would continue the steady trend of rising sales over the course of the year as consumers spend the additional income that tax cuts afforded them thanks to last year’s reforms.

DAX gains ground as investors upbeat after ECB meeting

Carney appears in Dublin after fresh Brexit warning

Mark Carney is due to speak in Dublin this morning which is sure to attract some attention, coming a day after the Bank of England kept interest rates on hold and, arguably more interestingly, the Governor risk the wrath of Brexiteers with more gloomy predictions. Carney met with the cabinet on Thursday and laid out what the bank considers to be a worst case no deal Brexit scenario, which included house prices falling by 35%, something Brexiteers will be keen to stress is more project fear from a closet remainer.

I think there’s a good chance that Carney steers clear of Brexit forecasts when possible in the coming months for fear of being seen as interfering in the process. The central bank may also be planning a similar approach after raising interest rates last month and giving itself the freedom to take a step back now for the rest of the year.

Dollar marks time as China data neutral

Lira steadies after CBRT hike but significant risks remain

The actions by the CBRT on Thursday appears to have had the desired effect for now, with the lira having since stabilized at around six to the dollar, which is still extremely high compared to earlier in the year but around 15% off its peak a month ago. While inflation is still expected to continue to rise from around 18% currently and the economy could face a tough recession, the moves by the central bank may prevent a much greater crisis.

USDTRY Daily Chart

OANDA fxTrade Advanced Charting Platform

The question now is whether President Recep Tayyip Erdogan will be willing to accept the central bank going against his wishes and raising interest rates, or whether he’s going to seek to control the central bank as well which could have devastating effects. We may have some stability in the near-term, which is welcome, but I have little confidence that this will last and feel a lot more needs to be done to reassure investors.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

Super Thursday, indeed

Super Thursday, indeed

Super Thursday for some but a Topsy-Turvy one for others. Of course, much of that had to do with what side of the US dollar coin you were on.

Hope springs eternal for emerging markets anytime the US dollar weakens and yesterday was no exception. As indeed the stars aligned for emerging markets (EM) assets after an astonishing interest rate hike from the Central Bank of Turkey (CBT) of 625bp and an exceedingly soft US CPI data. And for beleaguered emerging markets, the timing could not have been any better as traders were coiled and ready to strike after the past fortnights of intense EM  bloodletting. Meanwhile, the BoE meeting proved a total non-event but the ECB, more constructive.

Not surprising, interbank EM currency volumes surged as a solidarity rally by proxy ensued, much to the relief of just about everyone quite frankly, as
US stocks pushed higher with the technology sector rebounding as participants took a more calming view of the US-China trade dispute while emerging market assets rallied on the weaker US dollar which supported a very bubbly risk environment.

Indeed, we could see this “risk on”shift that was set in play in early Asia yesterday extend throughout today’s APAC session. Mind you, chasing short covering rally can be fraught with danger.

With that in mind, let me do my best spoil the party by suggesting that much of this rally will depend on what level of diplomacy that can be reached from the US-China talks and if  President Trump is willing to fold a strong hand and not impose 200 billion in tariffs? But failing any progress on these fronts, the Pboc will be less incentivised to keep the RMB complex in check, and we could be in for another EM fracas if the Pboc guides the Yuan incredibly cheaper. And of course, there that small matter about rising US yields which generally sounds the death knell for EM currencies, but let’s leave that one alone until next week.

Oil Markets

Topsy Turvey Thursday indeed!!

Oil futures markets gave back Wednesday’s gains, but there must be more to it than a realisation that last weeks inventory reports included a significant increase in product inventories that more than offset the US crude inventory draws. That’s second nature for the Willey oil trading community, so the issue does run deeper Specifically, those same Willey veterans latched on to International Energy Agency report which indicated daily crude-oil output in the Organization of the Petroleum Exporting Countries climbed in August by 420,000 barrels a day, to average 32.63 million a day.

So, while the anticipated production drought from Venezuela and Iran could be an issue in the future, it’s not an imminent one as OPEC total crude production came in the right on top of estimates and triggered a bearish correction on both WTI and Brent prompt contracts.

So, in a nutshell, the market came off aggressively as Crude Oil supplies are not tight, well not yet anyway. But when you look at in the context that EM countries crude demands are at risk from an economic slowdown( tariff impact) coupled with the sturdy supply report, there are some concerns that increases from OPEC and non-OPEC producers can offset the Iran sanction concerns.

Gold Markets

A convincing snap in the  XAU-DXY  correlation overnight suggesting that the de-escalation in US-Sino trade dispute is having a calming effect on overall risk, and despite the dollar trading considerably weaker after the soft US CPI data, the tight correlation snapped.

Of course, from a hedger perspective, the focus has been on US equities as opposed to the US dollar so with global equities back on the boil there is little demand for gold in general. At the heart of the matter, ETF flows remain stagnant, and gold continues to be little more than a dead money trade at this point.

But the enormous tail-risk remains in play as when dollar strength return sand that tight XAU-DXY  correlation will come back with a vengeance with a high degree of certainty.

Currency Markets

Oh my, what a carry!!

The CBT set the one-week repo to an astonishing 24%! (+625bps) And that sigh of relief you heard out of Japan, was from Tokyo’s fervent carry traders who now have 24% annualised wiggle room to manoeuvre. We did see more TRYJPY buying this week than average, so there will be more than a few happy Japanese investors this morning especially after being nearly toppled when USDTRY rose more than three per cent yesterdy on President Erdogan who was bizarrely advocating for a rate cut.

And as expected on this decisive policy shift, it has triggered concurrent relief rally across EM.

EURO
Draghi was steady on headline inflation but a tweak in the core which is easily interpreted in the less dovish context that the ECB does expect inflation to concenter at its target as monetary accommodation is reduced at the fringe. A bit of a tough pill to swallow for EUR bears but, price action must be respected, and with US CPI providing little relief for the nascent dollar correction, I suspect the EUR bears will remain sidelined until more definitive signals emerge.

Australian Dollar
Price action was telling as indeed short position was much cleaner after the yesterday’s short Aussie squeeze, so we didn’t get that outsized reaction on positive EM development nor the weaker US CPI print that many had expected. But since we get to do this all over again next week, “Prudence”, suggests its time for the sidelines and to fight another day.

Malaysian Ringgit

Regional risk should trade positively today, suggesting the MYR will be mildly supported, but with Oil prices falling overnight, it will likely balance out the EM solidarity knock-on effect from the astonishing 625 bps CBT rate hike, so we could expect the MYR to trade neutral bias given the mixed signals.

CBRT takes the focus off BoE and ECB meetings

Turkish central bank needs aggressive hike to settle investors

Markets are trading relatively flat ahead of a slew of central bank meetings on Thursday, with the BoE, ECB and CBRT all scheduled to make interest rate decisions.

While the Bank of England and European Central Bank would typically steal the spotlight, it’s actually the Central Bank of the Republic of Turkey that will likely steal the headlines today. With inflation in Turkey close to 18% and the currency having repeatedly fallen to all-time lows against the dollar, it’s become quite clear to all that the central bank needs to step in with a substantial hike and its unexpected pledge last week that its monetary stance will be adjusted, suggests it will do just that.

This would be quite controversial though with President Recep Tayyip Erdogan having been very clear about his opposition to higher rates. Having made his desire for control clear, investors will be monitoring today’s decision very closely to see just how independent the central bank really is. A rate hike looks obvious but how aggressive they’ll be will give a strong indication of how much influence Erdogan has over them.

USDTRY Daily Chart

OANDA fxTrade Advanced Charting Platform

Traders will be very quick to express their disapproval if the central bank is seen to be not responding aggressively enough which could result in a substantial decline in the Turkish lira. There is currently an expectation of a more than 4% increase in interest rates and it may take more to satisfy investors and avoid such a depreciation. Anything short of this could be bad news for the lira both in the near and long-term.

BoE unlikely to change message as Brexit negotiations enter crucial stage

The ECB and BoE decisions will likely be relative non-events compared to the CBRT. Both central banks have recently announced some monetary tightening – BoE raising interest rates and ECB tapering QE and announcing its end date – and are in no rush to speed the process up.

With Brexit negotiations heating up, the BoE will more than happy to drift into the background having come under fire for its views in the past. With the outlook so uncertain and hanging on the outcome of these negotiations, there’s little upside to the central bank making any changes to its policy message between now and the end of the year and I expect that to come across over the next few meetings.

ECB expected to maintain slight tightening plans

While the ECB may be less affected by the Brexit negotiations, it has set out a path for the next year that will see it slowly exit its easing program and with the economy experiencing a slight slowdown, it’s going to be in no rush to change course in the near-term. The first rate hike may be a little more delayed than it previously alluded to but I don’t expect it to hint at that until QE has ended.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.