FX markets

Turkish central bank raises key interest rate – Lira rightly skeptical

  The Turkish Central Bank (TCMB) has recently raised its key interest rate rather unexpectedly by 200 bp to 10.25%. The move was explicitly justified by the risks to the inflation outlook and the need to keep inflation expectations in check. The guardians of the currency had long been reluctant to take this step in the form of an increase in the official key interest rate, thus completing a move away from „more restrictive monetary policy through the back door“, which had been overdue for weeks. By mid-August at the latest, the central bank had arranged the supply of liquidity in such a way that commercial banks were forced into more expensive refinancing facilities. In this way, the guardians of the currency were able to increase the average refinancing costs of the financial institutions and thus provide a restrictive impulse to the Turkish money markets. At the same time, however,…

Turkey on track – for the next lira crisis

  The lira does not rest. The Turkish national currency recently recorded a new all-time low against the US dollar, and it does not look much better against the common European currency. The situation is made worse by the fact that, according to media reports, state-owned commercial banks have intervened in the foreign exchange market to support the lira. Otherwise, the devaluation would probably have been even more pronounced. It is true that the past few months have been characterized by enormous challenges for the majority of currencies in the emerging markets segment. However, there are few representatives who have performed as badly as the lira since the outbreak of the Corona crisis. It is also striking that not even the brightening of global sentiment observed since the beginning of May has left a lasting positive mark on the lira. The impression that the weakness of the national currency is…

New Fed targets

New Fed targets Yesterday’s speech by Fed Chairman Powell was eagerly awaited, as he gave clues about the longer-term strategic direction of US monetary policy. On the market side, it was assumed that the Fed would explicitly allow the inflation target to be exceeded. Inflation target has been missed in the past Powell has fully met these expectations. The Fed will no longer be guided by the achievement of a specific inflation rate, but by an average inflation rate of 2% over time. The background to this adjustment is that achieving this target has already caused problems in previous years and inflation has been lower. As part of the strategic review of its monetary policy, which began in November 2018, the Fed examined this issue and has now adjusted its target system as a result. Average inflation – but no precise timing Powell announced at the Federal Reserve Symposium in…

Gold easily jumps over USD 2,000

Like a highly decorated jumper, Gold easily takes the 2,000-meter hurdle. Especially among institutional investors, gold has become socially acceptable. They are increasingly confronted with the USD 16 trillion problem. That is how high the volume of bonds (investment grade) with negative returns can be quantified. Investment alternatives are therefore a rare commodity. We expect investment demand to continue to rise due to the current interest rate and uncertainty situation. Especially since the gold content of institutional portfolios is still extremely low, at less than 0.5 percent. Also the fact that the status of the US dollar as the ultimate safe haven is at least getting a scratch, speaks for continued high investor interest. At this point, it should also not be forgotten that the gold market is very tight. The globally outstanding Gold Exchange Traded Funds (ETFs) have a market capitalisation that is just about the same as that…

EUR-USD: Caught between two fronts

The Corona crisis has triggered extreme turbulence on the international financial markets. Particularly in March, some dramatic price movements were observed. The „risk-off“ sentiment pulled stock markets into sheer bottomless pits, while aggressive spread widening dominated the picture on the credit markets. The situation on the currency markets is somewhat more complex. Here, too, there are, of course, traditional risk-off patterns – these have recently been observed above all among emerging market currencies, which have suffered severe losses. However, currencies are by definition always a relative consideration: it is not enough to say that the corona crisis will result in massive economic losses for all countries. It is the task of a foreign exchange investor to assess which countries are more or less affected than the rest. How difficult the market has found it to weigh up the various economic perspectives and to assess which currencies can be considered safe…

There is no way around the US dollar

The Bank for International Settlements has published its triennial statistics on foreign exchange turnover, considered the ultimate in global foreign exchange trading. The most important finding for us is the predominance of the US dollar. Despite doubts about the reliability of US policy and the frequently assumed global desire for an alternative means of payment, the US currency can even slightly expand its leading position in the foreign exchange market. Other key statistical findings are as follows: „Overall sales are on the rise again: Daily foreign exchange turnover in April 2019 was 6.6 trillion. US dollar (2016: 5.1 trillion). The trend of declining volumes observed between 2013 and 2016 has thus been broken. „US dollar remains the most liquid currency: 88.3% of all foreign exchange transactions are denominated in US dollars (2016: 87.6%). The euro can also maintain its second place with 32.3% (31.4% in 2016); however, it cannot be…

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