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In today's update, we highlight three pivotal narratives shaping the currency landscape. Firstly, industrial metals wrapped up the year with a notable price uptick in December. Secondly, the lira is expected to persist in its depreciation against the dollar, having experienced a notable 36% decline last year, leading the downturn among European emerging markets. Lastly, oil registered a back-to-back increase, propelled by disruptions in Libya and rising tensions in the Middle East, a crucial region for oil production.

Matheus Zani & Daniel Porto

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2. Lira's Outlook: Navigating Declines and Inflation in 2024

The lira is poised to continue its decline against the dollar after a 36% drop last year, the most significant among European emerging markets. Yet, accounting for inflation, some resilience is anticipated. BBVA expects the lira to stabilize at 42 per dollar by year-end, while HSBC forecasts a more modest 33 per dollar. December saw an annual price growth of 64.8%, slightly below economists' expectations. Strategists view the central bank's anti-inflation measures as favorable, easing dollarization fears.

As of early 2024, the lira has further weakened, slipping 0.8% in the first two days. Amidst rising prices, the central bank hints at more monetary tightening after seven rate hikes since June, targeting inflation near 65% for the second consecutive year, reminiscent of the late 1990s.

3. Brent Approaches $79: Geopolitical Tensions Boost Oil

Oil saw a second consecutive day of gains, following a more than 3% surge on Wednesday, driven by supply disruptions in Libya and escalating conflicts in the Middle East, a vital oil-producing hub. The global benchmark, Brent, approached $79 per barrel, with West Texas Intermediate hovering near $73. The heightened tensions in the Middle East, responsible for roughly a third of global crude production, are poised to potentially reinstate a risk premium on oil prices.

Charted Territory

What to look out for today

ZAR - S&P Global South Africa PMI (Dec)
GBP - S&P Global/CIPS UK Composite PMI (Dec)
BRL - Brazilian PPI (Nov)
USD - Initial Jobless Claims
USD - Crude Oil Imports
JPY - Monetary Base (Dec)

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