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The Turkish lira has weakened again this morning towards a record low that it hit against the dollar yesterday, after the Turkish president Recep Tayyip Erdoğan signalled that he would not be deterred by rising inflation from cutting interest rates further.
The lira is down 2% against the dollar at 12.95 after closing at 12.7 on Tuesday, when it fell as low as 13.45. It has lost more than 40% of its value this year.
The Turkish president, who had declared himself an “enemy” of high borrowing costs, defended the four percentage point cut in interest rates this year to 15%. He said it would spur investment, increase job prospects and boost economic growth.
However, amid concerns that his unorthodox management of the economy was likely to deter investment and increase inflation above the 20% level recorded in October, investors took flight.
Some banks across the country stopped currency transactions yesterday, fearing that the steep fall in the lira’s value could spark a run on reserves, according to local newspaper reports.
There was also speculation that the government had laid plans to impose strict capital controls to prevent further withdrawals should the economic situation worsen.
With the US closed on Thursday for the Thanksgiving holiday, we will get a tsunami of economic announcements today, including the second estimate for third-quarter GDP and culminating in the release of the latest Federal Reserve minutes.
Michael Hewson, chief market analyst at CMC Markets UK, says:
While the minutes aren’t likely to deliver too much in the way of surprises they could act as a decent insight into the deliberations of the FOMC into the decision-making process when it came to deciding the amount of the initial taper. While the initial reduction of asset purchases was widely expected, an initial monthly reduction of $10bn in Treasuries, and $5bn in mortgage-backed securities, it will be interesting to find out how many FOMC members wanted to go faster.
This will be especially pertinent given how the committee was evenly split on raising rates next year, when it last met. We already know that there a number of Fed officials who are uneasy at the pace of price rises, and there does appear to be significant disagreement about how persistent some of these price pressures are. Today’s minutes could show where these divisions are, with today’s economic numbers giving added fuel to the argument for a faster taper when the Fed meets next month.
Before that we get to see the latest revision of US Q3 GDP which is expected to see a modest upward adjustment to 2.2%, from 2%.
In Asia, stock markets were mixed, with Japan’s Nikkei falling 1.6% while Hong Kong’s Hang Seng edged 0.2% higher.
European stock markets are expected to open higher, bringing some respite to Germany’s Dax which has fallen for four days amid a fourth wave of coronavirus infections, while the FTSE 100 index in London posted a modest gain for the second day this week.
- 9am GMT: Germany Ifo business confidence for November
- 11am GMT: UK CBI Industrial trends survey for November
- 1.30pm GMT: US GDP for Q3 (second estimate)
- 1.30pm GMT: US Durable goods orders for October
- 1.30pm GMT: US Jobless claims
- 2.30pm GMT: UK Bank of England policymaker Silvana Tenreyro speaks
- 3pm GMT: US Core Personal Consumption Expenditures index for October (forecast: 4.1%)
- 7pm GMT: US Federal Reserve minutes
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