Weekly Review: Turkey Crisis Eases as Hopes of Trade Emerge

This week, Turkey has been a key concern among market participants who have worried about the country’s economy. Last week, the Turkish Lira fell to the lowest level against the dollar as the Trump administration imposed additional tariffs. The USD/TRY pair reached a high of $7.2. This week, Turkey announced that it will impose tariffs on American goods like iPhones and cars like those manufactured by Ford and General Motors. In addition, Turkey received a reprieve from Qatar, which announced that it would invest more than $15 billion in the country.

The Turkish Lira has since then eased a bit, but it is not yet over. The country’s main problem is that it borrowed heavily when the dollar was a bit weak. With a stronger dollar, the country is now struggling to pay the debt and may need an Argentina-type of bailout from the International Monetary Fund. This problem has been compounded by the Turkish government reluctance to increase interest rates even as inflation soars. Yesterday, the Trump administration announced that it would add more sanctions if Turkey refuses to release an American pastor.

The trade issue came into play when a report emerged that the United States and China were committed to restart talks. The two countries have been in a major disagreement that threatens the entire world economy. The US has accused China of having major tariff and non-tariff barriers, stealing its technology, and providing subsidies to companies. China has refuted these claims, saying that forced technology transfer were necessary to bridge the gap with West. It has also committed to reducing barriers for global corporations.

The US is right to confront China, the world’s largest market. The country has stolen American technologies, increased tariffs, and made it impossible for American companies to compete there. However, Trump’s approach would have been better if it incorporated other Western countries, who face the same challenge in China.

This week, we received several major economic data. On Tuesday, we received disappointing industrial growth data from China. The industrial production rose by 6.0%, which was lower than the expected 6.3%, a reflection of the ongoing trade issues. On the same day, we received the second reading of the GDP from the EU. The EU growth was revised upwards to 2.2%, which was better than the expected 2.1% while the employment numbers in the UK disappointed.

On Wednesday, we received CPI numbers from the United Kingdom. In July, the country’s CPI was at 0.0% while the house price index and PPI input and output were higher than expected. The pound continued to fall, reaching the lowest level since June last year as traders continued to worry about Brexit. In the United States, we received retail sales data, which were better than expected. In July, the retail sales grew by 0.5%, which was better than the expected 0.2%. The core retail sales were better than expected too. On Thursday, wee received disappointing jobs numbers from Australia and better than expected retail sales from the UK. The US jobless claims were better than expected too. The chart below shows the strength in the dollar during the week.

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