Lira Hits Historic Lows

Daily Analysis - 11/01/2017

Turkish Currency Continues to Slide Versus Major Peers

Political and economic concerns in Turkey continue to weigh on the Lira as evidenced by the latest plunge and intervention response from the Central Bank. The currency kept trending lower versus the other majors after reaching an all-time low relative to the US dollar on Tuesday.

Turkish Lira Plunges to Record Lows

The ongoing economic slowdown and rising security risks continue to cause uncertainty for the Turkish Lira, paving the way for a -25.00% decline versus the US dollar over the last 52-weeks alone. The situation in Turkey with Islamic State and the Kurdish Separatists have raised concerns about political stability.

Amid the uncertainty, political officials are debating whether to expand powers of President Erdogan, which could further muddy the outlook for the economy going forward as the Central Bank runs into resistance when it comes to raising rates to fight inflation and the decline in the local currency.

After the Central Bank lowered the lowering reserve ratio requirements for financial institutions the Lira losses moderated slightly. However, Tuesday’s selloff has extended into Wednesday’s session with the USDTRY pair reaching back towards the previous session’s highs.

Russian Inflation Lowest Since the Soviet Union

Data reported by the Russian Federal State Statistics Service showed that inflation in country recorded a historic drop to 5.40%, beating the 6.10% recorded back in 2011. The prints marks the lowest level of inflation since the collapse of the Soviet Union. The data is in harmony with the prevailing downward trend in consumer prices begun back in 2015.

According to Russian Prime Minister Medvedev, falling inflation was accomplished by stimulating financing in automotive and light industries as well as programs related to transport and agricultural machinery.

Medvedev stressed that the drop in inflation was achieved despite the economic sanctions Russia is facing from economic giants like the European Union and the United States. After falling to the lowest point since July of 2015, the USDRUB pair has been back on the climb the last three sessions, retaking the 60.000 level.

Swiss Joblessness Reaches 8-Month High

The unadjusted unemployment rate in Switzerland remains on the climb, rising to 3.50% during December after missing forecasts of joblessness remaining on hold at 3.30%. Besides marking the highest rate of unemployment since April, the figure suggests that the extremely accommodative Central Banking policies are starting to experience a diminished impact.

While inflation has managed to climb back to flat after trending in deflationary territory for 25-months, other fundamental indicators remain under pressure, with GDP growth stagnating during the third quarter at 0.00%.

As inflation rises, it will begin to pave the way for the Swiss National Bank to begin tightening policy from a record low interest rate of -0.75%, however, until then, the Franc is likely to remain under pressure, with the USDCHF pair recovering after a modest selloff to start 2017.

US JOLTs Job Openings Disappoint

After showing nonfarm payroll growth tapering last Friday, the US Bureau of Labor Statistics job vacancies report showed that the number of available open positions in the US increased to 5.522 million in November, missing estimates of 5.555 million jobs.

Regardless, the current US JOLTs Job Openings recorded 71,100 more positions available compared to the October figure of 5.451 million. Although the measure has shown significant progress since the last financial crisis, especially compared to August of 2009 when JOLTs data showed 2.15 million available job openings, there are growing concerns about the degree of labor market tightening.

However, as Fed officials have pointed out, this could be positive for hourly earnings as a shortage of available workers forces companies to raise wages. Following a period of softness, the US dollar is back on the climb, sending GBPUSD back towards multi-month lows reached on Tuesday.