This week has continued to see some significant volatility in the money markets with events in Turkey the main catalyst.
With sanctions being imposed on Turkey by Donald Trump and his US government over Turkey’s refusal to release a US pastor imprisoned in Turkey, Turkish President Erdogan has swiftly retaliated by sharply raising tariffs on US imports. This includes passenger cars, alcohol and tobacco.
Following the unrest the Turkish Lira fell to record lows on Monday. During this time it lost more than 34% of its value against the US dollar and was to see similar moves against the Pound and Euro. It has since recovered but this volatility has caused some significant market jitters and a “flight to safety” for a number of investors.
What currencies have been affected?
Historically when investors are spooked and risk appetite falls currencies such as the US dollar (USD) and Swiss Franc (CHF) will perform well. This is due to their ‘safe haven’ status. Historically the CHF has been a relatively stable currency with stable interest rates making it a more attractive option for investors, banks and hedge funds. With the US dollar being the most globally traded currency (a number of commodities are prices in USD) investors also see it as a safe bet. In recent days it is this drive which has seen it rally to a near one year high against the pound (1.27) and EUR/USD falling to 1.1330.
With certain currencies benefiting there are obviously those that lose out. Often the currencies to experience a significant loss will be those offering a higher yield, currencies such as the South African Rand (ZAR), Australian and New Zealand Dollar (AUD,NZD). We have seen a devaluation in a number of currencies as a result creating some good buying opportunities if you are in a position to act quickly.
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