CBRT goes above and beyond

It’s not often that a central bank governor being sacked and finance minister resigning on the same day is viewed positively but that was very much the case a couple of weeks ago in Turkey and for good reason, it seems. The Turkish lire had spiralled out of control, hitting new record lows on a daily basis and stealth tightening measures were doing nothing to slow the move. Something had to change and it has.

The moves in the markets showed that a change of approach was expected and the Turkish central bank has gone further than expected today. While the weekly repo, overnight lending and borrowing rates increased by 4.75% to 15%, 16.5% and 13.5%, respectively – in line with expectations – the late liquidity window rate rose more than expected to 19.5%. It seems the central bank is finally determined to deal with the currency and inflation issues head-on rather than try and be clever in the interest of politics.

Barnier spurs Brexit deal optimism

There isn’t a huge amount to catch up on, with regards to Brexit, the only notable development being Michel Barnier’s decision to cancel EU briefings today, a sign perhaps that the two sides are inching closer to a deal and there may be a more substantial update to provide shortly.

The pound jumped a little on the news but continues to trade a little lower on the day against the dollar, and flat against the euro and yen. As I’ve repeatedly said, it’s incomprehensible to me the idea that these talks could collapse at this late stage and the way the markets are positioned, I’m not the only one. A deal will probably spark a temporary relief rally in the pound but that may be short-lived and profit-taking may quickly kick in. This is largely priced in now. The major risk lies below if the unthinkable happens.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/