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Exchange4free Global Forex Report (15/08/2018)

USD

The US dollar fell modestly during Tuesday’s session, as emerging market currencies show signs of stabilization, taking a pause from the anxieties about Turkey. Analysts from the Wall Street Journal believe that the dollar decline happened as investors assessed whether concerns surrounding Turkey would continue to affect other emerging market currencies as well as the Euro. In recent days, currencies around the world have been depreciating as investors have sought safety in the US dollar and Japanese yen and moved away from riskier currencies, such as the Peso and South-African rand.

The dollar has posted gains against the Euro as investors have tried to determine which parts of the global economy would most likely be affected and have most exposure to Turkey. Another contributing factor to the strength in the US dollar, is the slowing pace of economic growth in China. Slowing growth in China plus increased tariffs from the US, make for a stronger US dollar. Analysts and investors alike will keep an eye on the US today, as US unit labour costs and US industrial production data will be released later today. Should the data be inline with expectations, the US dollar will see a further surge. Currently the EUR/USD currency pair is trading around 1.1325.

EUR

The Euro recovered during Tuesday’s session, after posting losses in earlier sessions due to the collapse of the Turkish Lira. The gains in the Euro was partly due to a recovery in the Turkish Lira and partly due to better than expected economic data from the Eurozone. Although the Euro has shown a slight recovery, analyst do warn that the exposure of European banks to Turkey would continue to trouble the Euro.

Economic data from the Eurozone helped to draw the focus away from a troubled Turkish Lira, as growth in the region came in at 0.4% for the second quarter, which was better than the expected 0.3%. Analysts and speculators believe that, should growth of 0.4% be true, when the final data is released on 7 September, it would disregard any initial fears of an economic slow down in the second quarter. The better than expected estimate could increase the European Central Bank’s (ECB) confidence in winding down their asset purchasing program. Analysts will be keeping an eye on the situation in Turkey, as movements in the Lira will cause movements in the Euro. Currently the EUR/USD currency pair is trading around 1.1325, down almost 0.5% from Tuesday.

GBP

During Tuesday’s session the Sterling edged slightly higher against the US dollar as the UK’s employment data came in better than expected and left the GBP/USD currency pair trading around 1.278. The latest employment figures from the UK indicated an unemployment rate of 4% for June, which is also the lowest unemployment rate since 1975.

Market speculators and analysts say that the Sterling could be headed for greater gains, depending on how the market and traders respond to the UK inflation data. Later today, UK inflation data is said to show a faster pace of price growth, with a shift from 2.4% to 2.5% in July. A slower month-on-month reading has been forecasted, but analysts say that the Sterling could still be supported by the high-impact annual reading. Higher inflation rates will put pressure on the Bank of England to rise interest rates so that the GBP/USD currency pair can rise to match data.

It is necessary to take the other side into account, as higher inflation rates could lead to a UK wide wage squeeze, diminishing real household income. Should traders be more concerned of the wage effect caused by inflation, the Sterling will most likely depreciate and forfeit all gains made over the past few days. Currently the GBP/USD currency pair is trading around 1.2697.

AUD

The Australian Dollar is under pressure as its heading for its sixth consecutive fall against the US Dollar, as the US dollar continues to push higher against most major pairs. The Australian Dollar is sitting at a 3% weekly decline against the US dollar and is now trading at its lowest level since January 2017.

According to Westpac currency strategists, the weakness in the Australian dollar can be linked to softer commodity prices, due to iron ore falling for 5 straight days, gold continues to slide and copper futures are at its lowest levels since June 2017. Analysts believe that softer commodity prices might be an indication of trade wars still being in focus. Currently the AUD/USD currency pair is trading around 0.7220, down 0.46% from Monday.

CHF

The Swiss Franc continues to gain against the Euro, as risk sentiment and some struggles in Europe continue to push the CHF higher and the EUR faces considerable downward selling pressure now that EUR/USD has pushed through 1.15.

CHF is once again becoming the safe haven choice during the rising European risks, this is mainly due to the troubles from Italy that have returned to the headlines over breaches of Eurozone deficit spending rules under the new populist government.

The Pound has also fallen sharply against the Swiss Franc on the back of Turkey’s crisis which is creating uncertainty throughout the financial markets globally. GBP/CHF rates have fallen below 1.27 as investors seek the safety of the Swiss Franc to avoid the global risks elsewhere. Uncertainty of Brexit is also causing Pound weakness.

ZAR

The South-African Rand has had a bumpy few days, with the currency dropping to its lowest levels in almost a decade, losing 4% against the US Dollar as of Monday morning. Political infighting, severely indebted state-owned enterprises and controversial land expropriation bill have all lent a hand in the 15% drop in the South-African rand against the US dollar.

Not only have local factors proven to be stumbling blocks for the Rand, but analysts point out that global factors, such as trade wars and issues in Turkey, have also contributed to an uneasy Rand. Analysts say that the current trade war is having a negative impact on most emerging currencies, as investors are fleeing to safe haven currencies and away from higher risk currencies. The Rand, along with many other emerging market currencies, is seen as collateral damage in the battle between the US and Turkey, causing volatility in emerging market assets and a dampened investor sentiment. Analysts and speculators believe, that should this spat between Turkey and the US continue, there will be no light at the end of the tunnel in the near term for emerging markets. Currently the USD/ZAR currency pair is trading around 14.30, compared to 14.2464 on Monday.

NGN

The Naira is at risk of weakening due to the crisis surrounding the Turkish Lira. The threat for the Naira will be that investors continue to have a risk off mentality during this period, with a strict reduction in trader appetite towards emerging market assets.

This means that emerging market currencies like the Naira will be off the table for investors and we can expect for the Naira to take guidance from the Lira crisis.

Exchange4Free Global Forex Report (08/08/2018)

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