Dollar holds ground ahead of busy week
By Arnaud Masset
After extending gains against most of its peers amid renewed concerns over trade tensions, the greenback started the week slowly and consolidated gains. The dollar index stabilised around 95.10 as EUR/USD rose 0.15% to 1.1618, while the pound eased -0.33% to 1.2917 as a no-deal Brexit continues to threaten. Markets are cautious, as NAFTA negotiations between the US and Canada are still going on. Recently, the US Federal Reserve has sounded dovish: traders are less sure the central bank will hike rates aggressively next year. Two more rate hikes for this year are priced in for 2018, but 2019 is unclear.
A positive surprise in this Friday’s labour report will have a limited impact on markets, while a negative surprise could weigh significantly on the greenback. Political developments will drive the FX market this week. In the US, August’s ISM manufacturing will release on Tuesday; ADP employment change will publish on Wednesday; August’s ISM non-manufacturing PMIs and durable goods orders will release on Thursday; finally, the labour report is due on Friday (NFPs, unemployment and wage growth).
Turkey inflates
By Vincent-Frédéric Mivelaz
Fears of contagion related to Turkish banks continues to spread, pushing the Turkish lira downward as inflation grows at a higher pace than expected. No obvious intervention from the Turkish Central Bank is communicated and implemented. For now, August CPI data are higher than expected. Annual and monthly figures are given at +17.90% and +2.30% (consensus: +17.60% and +1.84%), highest in 15 years, and the end is not in sight. Inflation could reach 25% by the end of 2018, far from 5% target of the Turkish Central Bank. With weaker domestic demand and economic confidence (at 9-year low) along with a drastic slowdown in industrial production, Turkey’s GDP growth is expected to slowdown in Q3 from 7% in Q2.
Further weakness in in the Turkish lira is anticipated. Recent announcements from the central bank hints towards a policy adjustment at its 13 September meeting. If the response is not perceived as enough, the lira will continue losing. USD/TRY overshot the 6.50 range last week and currently trades at 6.62, approaching 6.75 in the short-term.