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Turkish weakening impacts Eurozone

Turkish economic turmoil has greatly weakened the Euro last week, causing a decline against the Pound. Euro traders have panicked on news of a Turkish Lira crash, which has sparked broader fears about Eurozone banks suffering as a result. This slip in the EUR/GBP exchange rate is down to current concerns about what impact Turkey’s weakened currency will have on Eurozone banks. After a week of Brexit-linked losses, the Pound (GBP) has finally risen against the Euro (EUR) thanks to broadly supportive domestic data.

Emerging market currencies are ending the week with a brutal sea of red across the board, with consistent losses throughout Asia, while the South African Rand and Turkish Lira are leading the way with losses within the EMEA. The Rand dived more than 1.10% on a lack of risk appetite, whereas the Turkish Lira is the talk of the town after plunging an astonishing 10%.  

The Turkish Lira resumed its drop early Monday touching a new record low of 7.21 per dollar before recovering slightly during Asia trade. Comments from President Recep Tayyip Erdogan and Finance Minister Berat Albayrak over the weekend that a plan would be revealed today to calm the markets failed to restore confidence. 

After a rough start to the week, Asian stocks seem to have found some support as the Turkish Lira steadied below 7 per dollar. Japan’s Nikkei 225 rose 1.8% with all sectors in green territory as the Yen gave up some of yesterday’s gains. Australia’s ASX 200 and the Korean KOSPI also edged higher but gains were limited. However, China’s major indices and the Hang Seng failed to join the rally as poor economic data weighed on sentiment.

The Dollar Index retreated from its 2018 peak of 96.98 following news that China will resume trade talks with the U.S. later this month. The news allowed the Yuan and other emerging market currencies to rally after a steep selloff led by the Turkish crisis and ongoing trade tensions. However, most Asian equity indices remained in the red, suggesting that investors aren’t confident that trade discussions will end successfully.  After all, the world’s largest two economies seemed very close to reaching a deal in May but instead, both sides have been slapping tariffs on each other’s imports since then.

GCC sovereign issuance has had another strong first half, with the two multi-tranche sovereign bond transactions of Saudi Arabia and Qatar leading issuance of over USD 30 billion in the hard currency market, according to Fisch Asset Management. The Zurich-based asset manager believes that full-year issuance could surpass last year’s levels.

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