Turkish lira defies doubters – for now

Turkey’s freedom has increased in recent months, despite Ankara’s sudden killing of the central bank governor and threatening US sanctions on Russian missiles.

Lira has been a lucky beneficiary of the shift of the US Federal Reserve to a more supportive stance that has driven emerging markets.

An escalation this week in the US-China trade war and the depreciation of the Beijing yuan could push the Fed to do even more to weaken the dollar, giving it free space.

Turkish investors and officials who were preparing for the worst in the spring have also been pleasantly surprised by the reluctance of US President Donald Trump.

These two plot twists have provided an unexpected cover as the Middle East’s largest economy blocks its way out of recession, and as President Tayip Erdogan recovers from the shocking defeats of local elections by his ruling party.

Turkey’s lira is the strongest emerging market currency so far this quarter, while its bond returns have jumped from among the worst earlier this year among the best.

Its prospects now depend on whether hungry investors will continue to ignore the global trade war and buy more risky assets, as well as the ability of Turkish authorities to regain confidence in the central bank.

Cristian Maggio said, “People are rallying for free,” the head of emerging markets strategy at TD Securities.

“The main factor is external and the Fed is on a monetary easing path.

The lira was valued at $ 5.53 on Tuesday, about 10% stronger than 6.19 in early May, when Goldman Sachs (NYSE: GS), Societe Generale.

Two weeks in July

These forecasts can still prove to be correct – they will return the currency back to levels hit in last year’s crisis, sparked by concerns about central bank independence and a diplomatic clash with the United States.

The lira in its nadir last year shed half its value against the dollar, sending inflation climbing above 25% in October.

Another sale this spring echoed for 2018.

A new diplomatic scam also emerged, with US officials warning that economic sanctions would be triggered if Ankara did not renounce its S-400 deal with NATO enemy Russia.

Trump left a meeting with Erdogan in June saying Turkey had been treated unfairly, the Turkish president called the Washington bluff – and the markets’, and Turkey began taking S-400s within two weeks.

Erdogan sacked central bank governor Murat Cetinkaya for failing to follow instructions to facilitate policy.

The central bank under its new chief has followed Turkey’s biggest rate cut since at least 2003.

But the lira was only slightly tempted and has led a group of 29 market currencies emerging since July 1, with nearly double Israel’s second-half earnings.

Since June 23, when Erdogan’s AK Party lost a high revaluation of the mayoral election in Istanbul, Turkish bonds have returned 4.2%, JP Morgan’s second emerging market index of JP Morgan. Equity flows have also returned around $ 3 billion at https://tmsnrt.rs/2MLf0BR.

(Graphic – On the road to recovery ?: https://tmsnrt.rs/2MLeWSD)

Cetinkaya’s dismissal and rapid rate cut “signals a decline in central bank credibility and independence, which increases macroeconomic risks going forward”.

“But market players saw an opportunity to capitalize on cheap bond prices in the short term.” She said the freefall could weaken if there were more rate cuts and the government failed to agree on a bailout.rofex.com

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