Lira Remains Near Record Low, Contagion Fears Ease

Fears of contagion of the Turkish Lira crisis appeared to be contained overnight, allowing Asian markets to catch their footing despite a sell-off on Wall Street. After Turkey’s currency crisis shook the markets on Monday, Asian indices moved broadly higher and European markets point to a stronger start on the opening bell.

The selloff in the Turkish Lira and the knock-on effects to other currencies and asset classes will continue to attract attention through today’s session. However, a fuller economic calendar will also provide traders with a distraction.

UK jobs data to justify BoE hike?

The pound managed to hold its ground on Monday, after heavy losses at the end of last week.  Traders will now look towards UK jobs data for the next move and to decide whether the BoE rate hike earlier this month was justified.

UK unemployment is forecast to remain constant at multi-decade lows of 4.2% in June. Looking further behind recent figures, there have been employment gains of 160,000 on average over the last three months; an impressive number particularly given the uncertainties presented by Brexit. The fact that the labour market has managed to continue generating employment was one of the key factors behind the BoE interest rate hike in early August. Whilst employment gains are expected to be in the region of 100,000, a decline from previous months, this would still be considered a solid generation of jobs and keep the pound happy.

Looking at average earnings, both including and excluding bonuses no changes are forecast with growth expected to remain at 2.5% and 2.7% respectively.

The pound is currently trading around one-year lows versus the dollar and the yen as fears of a no deal Brexit increase. A strong UK jobs report could provide a small relief rally in the pound ahead of UK inflation data on Wednesday and retail sales on Thursday. Although any rally may be short-lived as Brexit talks resume once again on Thursday.

Data to send euro back up to $1.15?

The euro experienced heavy falls on Friday, as concerns grew over European bank exposure to Turkish bad debt or loans. The euro consolidated those losses on Monday, remaining close to the $1.14 mark. With a slew of high impacting economic indicators from both the eurozone and Germany, euro bulls could have enough ammunition to boost the common currency back towards key support at $1.15.

Whilst the Eurozone GDP is expected to show a continued slowdown in the second quarter, manufacturing is expected to have ramped up, which will be a relief for those investors who were concerned over factory performance following Trump’s tariff threats. Furthermore, the German ZEW survey is expected to say that confidence in the powerhouse of Europe has improved, although still negative. Any unexpected weakness in today’s figures could send the euro back towards $1.13.