Following on from Friday’s latest US sanctions-inspired twist in the currency’s decline, the Turkish lira’s freefall continued to be the main driver of trading on Monday, with investors fearing the impact the situation could have on the Eurozone’s exposed banking sector.
One of the key sticking points is the intransigence from President Ergodan – whose appointment of his son-in-law as Minister of Finance and Treasury has cast doubt on the independence of the Turkish central bank – over keeping interest rates unchanged despite eye-wateringly high inflation and the lira’s heavy losses. That means the various non-rate hike measures announced on Monday to stabilise the currency – including the promise to provide ‘all the liquidity the banks need’ – will likely be limited in their effect.
So far the session’s losses have been manageable, if still not exactly welcome. The euro, which is at a sub-$1.14 13 month low against the dollar, is likely preventing the Eurozone indices from truly losing their heads, with the DAX down 60 points and the CAC slipping just 0.1%.
As for the FTSE, the index dropped 30 points to duck under 7650, likely perturbed not only by the precarious Turkish scenario but the fact the pound has managed to creep back towards €1.20 against the euro (don’t worry, it is still doing atrociously against the dollar).
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