Talking Points:
- The Turkish Lira selloff and its knock-on effects to other currencies (the Euro[1] and the South African Rand come to mind) will garner the most attention over the coming days.
- The July UK CPI report can help reinvigorate deflated rate expectations following the Bank of England's August policy meeting.
- There are two 'high' rated US data releases this week, but the only one that's worth paying attention to is the July US Advance Retail Sales report on Wednesday.
Join me on Mondays at 7:30 EDT/11:30 GMT[2] for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.
08/13 to 08/17 | --:-- | Turkish Lira Selloff Weighs on Global Financial Markets
According to a report released by the Financial Times on Friday, the ECB’s supervisory wing, the Single Supervisory Mechanism, had been in the process of reviewing European banks’ exposure to Turkey following the sharp depreciation seen in the Turkish Lira in recent months.
ECB regulators have begun to express concern that Turkish borrowers are improperly hedged against Lira weakness, and may begin to default on their foreign currency loans – meaning European banks’ balance sheets could be coming back under pressure. Per the Bank of International Settlements, Turkish borrowers owe Spanish banks $83.3 billion, French banks $38.4 billion, and Italian banks $17 billion; European banks are owed $194 billion in total by Turkish borrowers.
What was previously seen as an expected period of monetary policy being on autopilot, now is riddled with questions about whether or not the European Central Bank will even
