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The U.S. Dollar and the Turkish Lira are facing some economic and political headwinds. The Turkish government ordered local banks to write off $8 billion of bad debts on their portfolios. These loans were associated with the flash crash in Turkey’s currency due to the rising tension between Ankara and Washington. This was coupled by the escalating trade war between the United States and China. Despite this, Turkey is leading the efforts to influence Syrian politics. Erdogan, Putin, and Rouhani met in Ankara to draft a new Syrian constitution aimed at ending the Syrian civil war. This will cement the Assad government’s legitimacy, which will be a slap to the United States. Meanwhile, the U.S. Dollar is under pressure following the recent attack on Saudi Arabian oil facility that slashed 5% of the global daily oil production. In addition, the Federal Reserve is set to have its interest rate decision tomorrow, September 18.
The Bolsonaro government is under scrutiny from the EU leaders. This was amid the burning of the Amazon rainforest. Human Rights Watch reported that criminal networks are driving Amazon’s deforestation. The issue was raised by German Chancellor Angela Merkel and French President Emmanuel Macron, de facto leaders of the EU, during the G7 Leaders Summit. The tension could escalate to the withdrawal of the EU from the EU-Mercosur trading agreement. The deal’s 20-year negotiation ended following the election of Jair Bolsonaro as Brazil president. The ongoing Sino-U.S. talks is affecting Brazil’s exports. During the height of trade war, Brazil accounted for more than 80% of China’s total soybean imports. This will to weaken the Brazilian real. On the other hand, German Zentrum für Europäische Wirtschaftsforschung (ZEW) Economic Sentiment Index improved on the first half of 2019, which will strengthen the Euro.
The U.S Overall Net Capital Inflow showed a positive sign for the U.S. Dollar. The report posted an 8-month high of capital inflow to America. This means that investors are now looking forward for a better U.S. economy amid the ongoing U.S.-China trade war. In addition, the country’s Industrial Production report for the month of August entered its 11-month high. The same thing happened with America’s Manufacturing Production where it is showing some strength after having negative results in the previous months. The United States’ relationship with Brazil is at stake as the later became an important trading partner of China. Brazil accounted for more than 80% of Chinese total soybean imports during the height of the U.S.-China trade war. This was after China pulled its soybean imports from the United States as the trade war drags. This weakened the U.S. agricultural sector.
U.S. President Donald Trump is allocating $3.6 billion of U.S. Air Force funds to build his promised border wall. In 2016, Trump included the construction of a wall between the United States and Mexico on his key policies. Fast forward to 2019 and his promise has not been fulfilled yet. This is expected to affect his reelection bid for the U.S. 2020 Presidential Election. On the other hand, the commander of U.S. Air Force in Europe downplayed the fund diversion. He said this will give the military branch some time to preposition its military equipment in the right locations. The U.S. military is looking to expand in Europe following the withdrawal of the U.S. and Russia from the INF (Intermediate-range Nuclear Forces) treaty. The eastern bloc – Poland, Hungary, Czechia, Slovakia, and Romania – will host the increase military presence in the region. This is expected to increase the demand for U.S. Dollar in the host countries.