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Inflation Keeps Striking. UK’s Transport Workers go on Strike too
18.08.2022

The situation is getting more and more fascinating as the day unfolds, with a lot of unexpected developments and interesting price movements.

US Dollar Index

The US Dollar Index formed a correction which has brought the price back down to this morning’s market open. Currently, the index is still slightly higher on the daily charts which is showing a 0.02% increase. Traders are now watching closely to see how the currency will react once US traders enter the market. Currently, the Dollar is seeing a slight decline against the Euro, the Pound and the Yen. This has caused the index to decline.

Turkish Lira

The Turkish Lira, which is in the exotic currency category, is declining significantly against more or less all currencies. The story of the Turkish economy and its currency is an odd and unique one which continues to surprise. The inflation level in the country is the highest in Europe and one of the highest in the world. The latest inflation figure was above 70% and the core inflation rate was not much better at 61%.

The issue is that the level of inflation is eating away at the purchasing power of the currency, which has also resulted in the Central Bank dumping parts of its currency reserves in order to mitigate risk. In this situation, most Central Banks would look to increase interest rates in order to keep inflation under control and also tempt investors in order to protect the value of the currency. However, in a surprising move, the Central Bank of Turkey has decreased their interest rate from 14% to 13% instead. According to experts, this was likely an attempt to please President Erdogan. Especially, since most Central Bank heads have been fired over the past few years due to being too hawkish.

The US Dollar has increased by just under 1% against the Turkish Lira over the past few hours.

USDTRY - 18.08.2022.png USD/TRY 30-Minutes price chart on August 18th.

British Pound

This morning, the British Pound increased against the US Dollar, Euro and the Yen as well. However, the gains remain insignificant so far, and the currency still looks shaky, especially when taking the latest developments into consideration. One of them is the country’s transportation strike staged by airline and rail workers. This has already disturbed London travel and caused severe disruptions. It has been confirmed that the strike will continue until Friday 19th. In addition to the above, London’s dock workers have also announced an 8-day strike, which according to reports, will cause major supply disruptions. Specifically, the report highlighted disruptions to the clothes and textile industries.

USD/JPY

The US Dollar attempts, once again, to rise above previous resistance levels. Up to this point, the currency pair had lost momentum and been unable to give a clear indication that the resistance level would be broken. However, the US Dollar Index has remained pretty strong over the past week, prompting traders to keep a close eye on the price movement.

USDJPY - 18.08.2022.png USD/JPY 4-hour price chart on August 18th.

The economic statistics from Japan have generally improved over the past month. Japanese exports grew mainly due to the number of cars ordered for the US and China, and imports increased due to higher prices for oil, coal, and gas. Machinery Orders, the main indicator of investment in production, rose by 0.9% in July, partially offsetting the June decline which had worried traders. Though it should be noted that the Orders fell short of the projected increase of 1.3%.

In regards to the Federal Reserve and the monetary policy, the market will be listening closely to members of the FOMC due to give speeches over the next 24 hours. For example, the Federal Reserve Bank of Kansas City President, Ms. George is due to give a speech later today regarding what the Minutes report contained and how she believes the Fed will proceed over the coming months. It should also be noted that other members of the FOMC are due to speak over the next few days.

Over the past hour, the US also released the Philly Fed Manufacturing Index which is based on the latest surveys completed by US manufacturers. The index was confirmed as 6.2 which is the highest it's been in 4 months and much higher than originally expected.

Key Takeaways:

  • USD falls behind EUR, GBP and JPY before the US trading session.
  • Turkish Central Bank shocks the markets by lowering the interest rates, causing the Lira to react negatively.
  • Airline and rail workers in the UK stage a strike, dock workers join.
  • The US Philly Fed Manufacturing Index comes in higher than predicted.
  • The Japanese Yen sees support from improved economic statistics.
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