What Impact Will Syria have on the Currency Market?

The effects of the Syrian risk are widespread, but Mark Carney's address and housing data from the US will have just as big an impact on the market

Investec FX 28 August, 2013 | 11:20AM
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This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Jonathan Pryor head of FX Dealing for Investec Bank, comments on the effects of Syrian risk.

The risk-off theme in world markets continued overnight as news that military strikes in Syria could begin by the end of the week. The impact on markets has been widespread. With concerns that the unrest may disrupt Middle East oil supplies, Brent in London jumped 2.4% to $117.08 a barrel this morning extending the 3.3% advance yesterday.

Asian stocks dropped for a second day with about 8 stocks falling for every one that rose on the MSCI Asia Pacific Index. In currency markets, the flight to safety theme also saw the Yen make its largest gains against GBP in three months. On the flipside, EM currencies and assets remain under selling pressure with the Indian Rupee being the biggest loser, followed by the Turkish Lira, Mexican Peso and the South African Rand, within G10 the biggest losers have been the commodity linked Australian, New Zealand and Canadian Dollar.

Turning our attention to the day ahead, in a fairly thin domestic data week, the market will be paying close attention to Governor Carney’s speech in Nottingham this afternoon. This will be his first address since announcing on the August 7 that officials wouldn’t consider raising rates until the unemployment level falls to 7%.

Carney is expected to defend his forward guidance policy as markets remain unconvinced that the policy will keep rates low. Recall that since the announcement UK 10 year gilt yields have rallied 40 basis points to 2.80%, the highest level in two years, whilst the pound has also strengthened, amounting to a tightening of monetary conditions which was the opposite of the intended effect. Carney is expected to use today as an opportunity to counter market expectations of tighter monetary policy to come by reemphasising the mantra of ‘low rates for longer’.

In the US today’s focus will be directed toward the housing sector. The market expects pending sales of previously owned U.S. homes, released at 3pm, to have stagnated in July. Ahead of this release data on mortgage applications is due and with the gauge falling to its  lowest level in more than two years at the last release, economists will be keeping a close eye for an upward surprise.

 

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