- Turkish Lira drops again on 17.9% inflation
- Slowdown in UK and EU manufacturing
By David Johnson
“It was the third of September, that day I’ll always remember.” Name that tune.
Welcome to September trading, everyone. Our US readers will be away from their desks as they celebrate Labor Day (sic). It has nothing to do with maternity I am told. Have a good one.
The rest of the world is still battling the news and fake news over Brexit. Theresa May’s plan has been well and truly hammered by both the pro-Brexit camp in her own party and some of the EU negotiating team as well. Is it a dead duck? That’s hard to tell, but this may well be the week in which we find that out. And, if her plan is scuppered, will the Prime Minister also find herself in the waste bin? All or none of these questions will be answered this week, but these concerns do explain the Pound stepping back from its Friday highs. It hasn’t dropped far – $1.29 and €1.1125 – but it has ruined any chance of an immediate continuation of the rally.
Turkish Lira falls again
This week started with Turkish inflation rising to 17.9% in August; something that will do nothing to stop the Turkish Lira’s decline. The drop in the value of the Lira is partly responsible for the higher cost of living and a weaker one will add to that problem. It is a vicious spiral.
Japanese Yen recovers against Pound
We have also seen a sharp rise in Japanese capital spending. The Sterling – Yen rate shot up on Wednesday last week, as did most GBP related exchange rates in response to the positive Brexit news, but this pair is back to where it started on Tuesday after this Japanese data and the Pound’s tumbles elsewhere.
EU and UK manufacturing growth falls
We were expecting a slowdown in Italian, German and the Eurozone manufacturing data today, and sure enough, while growth continues in the sector, it’s at the slowest rate for almost two years. A strengthening Euro will have made life a little bit tougher for the EU exporters, but there are also a very mixed feeling around the markets over global economic recovery. Today’s UK Manufacturing Purchasing Managers’ Index (PMI) was also expected to be a tad weaker, but not by much. However, while still showing growth at 52.8 (anything above 50 denotes growth), this is also the lowest for more than two years, as business optimism and employment in the sector drop.
As mentioned above, the UK versus EU exit negotiations (sometimes you just need a break from the word ‘Brexit’) will be the driving force behind the Pound’s direction.
Aussie Dollar could weaken this week
The Australian Dollar looks set to weaken through the week if the data forecasts are correct. No change is expected from the Reserve Bank of Australia overnight but Wednesday’s Gross Domestic Product (GDP) data is forecast to be significantly weaker and that would definitely damage the AUD. A move above AUD 1.80 is likely for the Pound in spite of Sterling’s weakness in other areas.
Trumps and Tweets mean volatility for USD
For its part, the US Dollar is driven by trumps and tweets. The US is playing tough with Canada over the North American Free Trade Agreement (NAFTA) negotiations; the president’s tough talking Tweets are wearing a little thin now, but that does appear to be his preferred negotiating style. Either way, the US Dollar is a little stronger on his latest 140 characters. The week brings a fair smattering of US data and concludes with the US employment report. So volatility is de rigueur.
Before you go googling the lyric in the first line, it was ‘Papa was a rolling stone’ by The Temptations, 1972. Have a great Monday.