Turkey’s bounce

Peter A Rosenstreich Swissquote Bank Ltd

As emerging-market currencies quake, now could be an opportunity to bargain hunt. Turkey has bounced back: the market has lost its appetite for pushing TRY further, as USD/TRY 1 month at-the-money volatility stands at a whopping 60. Argentina, Mexico and South Africa have regained lost ground, decelerating the rabid risk-off trade seen Monday. Argentina raised interest rates by 5% (seven-day notes at a record 45%) and announced it will sell USD 500 million to support the peso.

President Trump has shown his trademark pattern: threaten, and then back off. Overnight, top national security aide John Bolton warned Turkey there would be no negations until the US pastor is released. Despite pugnacious position by both sides, efforts are being made to reduce tensions. It’s the only meaningful evidence to forecast USD/TRY’s next move. Besides, a juicy 17.75% in nominal rates will attract speculators who view the current calm as a scalping opportunity.

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Pound still soft

UK unemployment should fall further toward 4% (expect 4.1%). Wage growth should stagnate at 2.7%. Rising inflation should give the Bank of England confidence to raise rates in August. However, European growth concerns and Brexit uncertainty should keep the BoE sidelined for the rest of the year. We remain negative on sterling.

Author

Peter A Rosenstreich

Swissquote Bank Ltd

Peter Rosenstreich is Swissquote Bank’s Head of Market Strategy and manages the global strategy desk; he has held various positions in several banking institutions in the United States, Europe & Asia.

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