USDTRY at Record High, Brexit to Dictate BoE Policy - US Market Open

2018-08-02 13:35:00

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MARKET DEVELOPMENTS – BOE RAISES RATES TO 0.75% ON SURPRISE 9-0 VOTE

The selloff observed in European markets have spilled off into US equity futures (DJIA -0.7%, Nasdaq 100 -0.8%, S&P 500 -0.8%) as trade war concerns continue to weigh on sentiment. Elsewhere, European equities have been hampered by soft earnings reports, most notably the DAX after the largest weighted stock, Siemens reported a miss on revenue.

GBP: As markets had expected the Bank of England hiked the bank rate by 25bps to 0.75%, however, what was unexpected was the vote split, which had surprised with a 9-0 vote (Exp. 7-2 vote). As such, this had provided an initial lift to the Pound, with GBPUSD rising 40pips to 1.3129. However, gains were quickly reversed with the BoE signalling no rush for the next rate hike given the uncertainty surrounding Brexit, which the central bank noted that the Brexit responses could influence policy significantly. As such, the implied rates curves is relatively unchanged with another hike not fully priced in until September 2019. GBPUSD lows at 1.3017, however, with the selling now out the way and with Brexit leaning to the softer side, the near-term base at 1.30 will continue to hold.

USD: Renewed strength in the greenback amid the latest escalation in the US-China trade war saga. The US has seemingly adopted an “escalate to negotiate” tactic with the Trump administration threatening to place 25% tariffs on $200bln worth of Chinese goods instead of 10%. Consequently, this prompted a response from China who stated that they are prepared to retaliate, which in turn led to another selloff in global equities while the USD caught a bid.

TRY: The Turkish Lira at a fresh record low having finally weakened past the psychological 5.00 handle vs. the USD, after the US impose sanctions on two government ministers over the trial of a US pastor accused of backing terrorism. Eyes will be on whether Turkey begins to make steps to de-escalate the political tensions, which may provide some relief for the Lira

DailyFX Economic Calendar: Thursday, August 2, 2018 – North American Releases