The EUR/USD finally made a considerable move, and the direction is down.
Turkey is the center of attention. The large economy that borders the European Union suffers from high inflation for quite some time. Things have worsened there of late. The central bank did not raise interest rates to stem inflation and currency outflows. President Recep Tayyip Erdoğan nominated his son in law as finance minister, and the nation refuses to ask for help from the IMF.
This week, we learned that the US is imposing sanctions on two Turkish ministers involved in the detention of an American Pastor. The worsening relations with the US accelerated the fall of the Turkish Lira, with USD/TRY topping 5.00 earlier in the week.
The straw that broke the camel’s back for the euro was a report in the Financial Times that the ECB is concerned about the exposure of some European banks to Turkey. Spain’s BBVA, Italy’s Unicredit, and France’s BNP Paribas are on the list, all major banks.
The EUR/USD collapsed from around 1.1520 to a low of 1.1432. Cascading stop losses exacerbated the situation. The fall puts the pair at the lowest levels since July 2017.
The pair was already lowe as the US Dollar continued enjoying trade wars, a hawkish central bank, and a robust economy.
Turkish President Erdoğan is set to address the nation later on, and all markets will be watching.
In the euro-zone, we learned that French Industrial Production rose by 0.6% and that payrolls ticked up by 0.2%. There has been no material impact as the focus remains on Turkey.
Later in the day, the US releases its inflation data for July. The Core Consumer Price Index is forecast to hold onto the pace of 2.3% YoY.
All in all, markets are rattled by the turbulence in Turkey and the data, vital as it is, may only have a short-lived effect.