The situation in Turkey is a cause for concern if you are holding Euros, and the situation does have the potential to escalate. Further detail on the longer term issues developing from difficulties in Turkey in today's Euro report. The table below shows the difference in return you could have achieved when selling £200,000.00 during the high and low points during trading hours on Monday, demonstrating the importance of timing your transfer to maximise on your return.
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One of the reasons for concern is Turkish business’ who borrowed funds from abroad. The weakness of the Lira has made these debts far higher than bargained for, particularly the substantial sums borrowed in US Dollars.
The Federal Reserve has raised interest rates on several occasions and there could be more hikes this year further strengthening the already very strong Dollar.
Inflation is rising at a worryingly rapid rate in Turkey and there has been a complete lack of monetary policy change to try and counter this. Turkish President, Recep Tayyip Erdogan is unconcerned with this rise and the line between his decisions and that of the Central Bank of the Republic of Turkey is now not as clear as it once was.
His influence is clearly apparent form the lack of change in monetary policy and investors are becoming increasingly concerned considering Erdogens protégé and son-in-law, Berat Albayrak is in charge of Turkey’s economy.
With several large European Banks owed significant sums and the rumours that the International Monetary Fund may have to get involved in Turkey there is a real reason for concern regarding the Euro.
The ongoing trade war with the US is not helping matters and the situation could escalate. Turkey has benefited from $15bn from Qatar to ease matters, but relying on foreign aid is not the most stable method of maintaining a healthy economy.
Moodys have cut Turkey’s credit rating from BA3 to BA2 and S & P have cut their rating from BB- to B+.
If you are a Euro seller, I would be taking advantage of current levels if moving to Sterling. Despite the possibility of further gains due to the lack of clarity surrounding Brexit. It is currently one of the best times to sell Euros this year and the risk from the turkey situation is simply too great when weighing up risk verses reward.
On Thursday we will see the release of Eurozone Purchase Manager Index (PMI) data for both services and manufacturing sectors.
Manufacturing has the more significant impact on GDP. There is expected to be a small rise in services, but a small drop in manufacturing. If data comes in away from expectations we could see volatility on the market.
Late on Thursday morning we have the European Central Bank’s (ECB) monetary policy meeting accounts. It provides justification as to monetary policy decisions and can give a hint to monetary policy decisions going forward. I would not expect any great shakes as I feel there is little reason for any rate hikes in the bloc short term. The intention is to end Quantitative Easing by the end of the year and leave rates on hold.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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