Summary:

• USDTRY rises to the record high due to concerns over developments in monetary policy
• European stock markets erase initial losses
• Minutes from the last RBA meeting send a neutral message, AUDUSD tries to rebound from multi-week lows

 It’s was relatively peaceful morning in Europe without crucial events in the calendar. However, volatility was a bit higher as the stock markets managed to recover and post some gains, as well as USDTRY, jumped to the record high levels as the concerns over Turkish monetary policy and intensifying inflation pressure. Moreover, euro held steady despite the fact that political situation in Germany has been still unclear. 

The Turkish lira slumped against the US dollar in the morning to its lowest level ever on the back of simmering risks related to monetary policy and inflation. We already mentioned this story on Friday, however, there has been no an improvement since then. To remember the thread let’s recall an unorthodox point of view expressed by the Turkey’s president Recep Erdogan as he believes that high interest rates cause high inflation. Taking into account that inflation in the country hovers around 12% (the highest level since the beginning of this century) investors have rushed to sell the TRY predicting that based on the above-mentioned stance the central bank could start lowering rates in order to deal with high inflation.

Overnight, we got the RBA minutes from its latest meeting in November. The central bank underlined that any further rises in the AUD would slow an expected pick-up in inflation and economic growth alike. There was no a new comment with regard to the exchange rate. Nevertheless, during this morning in Europe AUD gained traction rising over 0.30% against USD – Aussie was the best-performing currency amid G10.

Political developments in Germany could be still concerning, although economic growth shouldn’t be threatened by this turmoil. It’s worth mentioning that Chancellor Merkel said that she’s skeptical about forming a minority government and would prefer new elections if she can’t put together a majority. After a soft opening sentiment on stock markets improved as DAX (DE30) gained over 0.60%. The Paneuropean Euro Stoxx (EU50) moved up 0.53% as well as French CAC40 (FRA40). Moreover, Spanish IBEX (SPA35) and the UK FTSE100 (UK100) rose by 0.30%. 

Once again data-wise calendar is calm so the market could focus on usually second-tier events. The US session could be slightly more interesting as the Fed’s Yellen is scheduled to speak in the late evening. Reports from commodity markets should also grab some of the investors’ attention.