Will the Lira’s Struggles Weaken Euro Exchange Rates?

EURGBP Rescued After New Lows for the Year

Euro exchange rates could be in for a volatile trading week this week and this may not necessarily be directly down to Eurozone economic data but for arguably a matter that is outside of the European Central Banks direct control.

It has been a consistent downward trend for the Turkish Lira for quite some time now, with TRL interbank exchange rates dropping roughly 60% year on year against the Dollar for a number of years.

How this impacts euro exchange rates is in two different ways. First and foremost the flow out of Turkish Lira and into Dollars is increasing demand for USD, and this in turn is then impacting EUR/USD, which is the largest traded currency pairing in the world.

With EUR/USD weakening you can often see a similar impact on EUR/GBP so there is a chance that is over the course of this trading week or in the coming weeks ahead that the Turkish economy and Turkish Lira takes another bashing on the markets then we may see a weakening of euro exchange rates too.

Secondly, a lot of southern European banks also have quite a bit of exposure to Turkey, not quite to the same level as we saw when problems last occurred back in 2018 but still enough to be majorly concerned about.

Further impact on the Turkish economy due to the uncertainty in general, weighed down by COVID-19 and the unfortunate incident in Lebanon. It is thought that the Turkish authorities had been making their move to pin down the value of the Lira against the Dollar throughout June and July, at an estimated impact of $65 billion, this is actually more than the Turkish Central Bank spent from their currency reserves over the whole of last year, so it clearly cannot continue at this pace.

Economic Data this Week for the Eurozone

The week ahead is actually fairly quiet for the Eurozone, with the potential focus in the early part of the week being on developments on the Turkish issues mentioned above and any news on Brexit also having the potential to shift euro exchange rates at any given time.

On Friday however we do have Eurozone growth figures for Q2. Expectations are for 12% contraction quarter on quarter and 15% year on year, which certainly isn’t great news for the Eurozone economy, however many other economic areas around the world are having very similar issues due to the Covid-19 outbreak.

On the subject of Covid-19 there are growing concerns of a second wave within Europe, with both Spain and France reporting significant rises in cases over the past week or so and also adding in restrictions to try and combat the spread of the virus.

Should we start to see signs of another lockdown then this may negatively impact euro exchange rates as it could be another big negative for the Eurozone economy moving forwards.

For those with an interest in EUR GBP we have unemployment figures for the U.K due out at 07:00 tomorrow with unemployment expected to have risen, again not a great surprise. On top of this on Wednesday the U.K will release growth figures for quarter 2 of 2020 and expectations are for a contraction of over 20% so this may not be good news for Sterling exchange rates.

Spain is the worst performing of the big 4 within the Eurozone at 18% so this would suggest that the U.K has had the poorest performance of the lot.

Currency Exchange – Euros

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