Turkish economic turmoil has greatly weakened the Euro (EUR) today, causing a -0.6% decline against the Pound (GBP).
Euro traders have panicked on news of a Turkish Lira crash, which has sparked broader fears about Eurozone banks suffering as a result.
Some analysts believe that the Turkish economic crisis will be self-contained, but this hasn’t prevented the Euro from tumbling today.
(Last updated 10th August, 2018)
Drop in EUR Trader Confidence Brings Euro to Pound Exchange Rate Losses
The Euro (EUR) has made a minor loss against the Pound (GBP) today, trading at an exchange rate of £0.8972.
This slip in the EUR/GBP exchange rate is down to current concerns about what impact Turkey’s weakened currency will have on Eurozone banks.
The Turkish Lira (TRY) has fallen to historic lows recently, due to an ongoing spat with the US and trader concerns that Turkish central bank is not independent.
This affects the Eurozone because Eurozone banks have invested in Turkey and the weakened Lira could lead to a wave of foreign currency loan defaults.
Berenberg Bank European Economist Carsten Hesse has cautioned that these fears may be overblown, stating that:
‘A full blown Turkish banking crisis would have some negative repercussions on Eurozone banks that have large credit exposure to Turkey or own Turkish banks.
‘Overall, the Eurozone banking exposure seems too small to cause a significant crisis.
‘Even if we are wrong and a potential meltdown of the Turkish banking sector would cause serious trouble for some Eurozone banks, bank supervisors in the region would have sufficient tools at their disposal to contain the damage.’
Mr Hesse has not entirely downplayed the dangers of a Turkish economic crisis to the Eurozone, however, adding:
‘A deep Turkish recession could lead to more migrants leaving Turkey for the EU.
‘Despite disputes between Turkey and the EU on many issues, the EU has a strong interest in a stable Turkey.’
Pound Sterling to Euro (GBP/EUR) Exchange Rate Ticks Higher on UK GDP Growth
After a week of Brexit-linked losses, the Pound (GBP) has finally risen against the Euro (EUR) today thanks to broadly supportive domestic data.
Preliminary estimates for UK GDP growth in Q2 2018 have shown growth on the quarter and the year.
While the Pound has advanced against the Euro on the news, not all the associated GDP data has been quite so supportive.
Among other cautious economists, Anthony Gillham of Quilter Investors has warned that:
‘While growth has improved slightly, it does so from a low starting point.
‘Over the medium term, UK growth has been thoroughly unspectacular, with the domestic economy expanding at a slower pace than most developed countries.’
Future Euro to Pound Forecast: Is EUR/GBP Advance ahead on German GDP Data?
The Euro (EUR) could recover against the Pound (GBP) on the coming Tuesday, when German GDP estimates come out during the morning.
The Q2 flash figures are tipped to show quarter-on-quarter and year-on-year growth, which could trigger a EUR/GBP exchange rate rise.
Although later Eurozone GDP readings are tipped to show a slowdown over the same period, the significance of German economic growth could still boost the Euro.
Despite the potential for early EUR/GBP exchange rate gains on Tuesday morning, the Euro could fall back in the pairing when UK wage growth data comes out later on.
A faster pace of UK wage growth is forecast – if this proves an accurate prediction then the Pound could rise sharply against the Euro on higher GBP trader confidence.