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Currencies: Turkish lira extends slide amid political uncertainty and equity jitters

Emerging-market currencies on Monday kick off the weak on the back foot, with the Turkish lira dragging major EM currencies lower on Monday. Read More...

The Turkish lira on Monday stumbled out of the blocks to be the worst-performing currency amid a broad selloff in risk-related assets.

The lira fell more than 1%, trading to a 2-week low, as political uncertainty continues to weigh on the Turkish economy.

“At the start of a new week of trading the Turkish lira is the weakest link due to rising market concerns that political tension may increase in the coming days/weeks. President Erdogan questioned the validity of the Istanbul vote saying this morning that there are ‘too many’ irregularities and he also cited ‘organized crime,’” wrote Piort Matys, EM FX strategist at Rabobank.


Turkish lira

Matys said bets against the lira could fuel further downside.

“Last, but not least, speculators are also able to bet against the vulnerable Turkish currency without severe restrictions imposed ahead of the crucial local elections on March 31. The CBRT [Central Bank of the Republic of Turkey] resumed weekly repo auctions today and also cut FX swaps to 24% from 25.5%,” he added.

In midmorning trade in New York, one dollar fetched 5.6927 lira, USDTRY, +1.1553%  down 1.2%, compared with late Friday.

Weakness in lira extended as U.S. equities moved lower at the open. The S&P 500 SPX, -0.17%  fell 0.3%, the Dow Jones Industrial Average DJIA, -0.41%  gave up 0.6% and the Nasdaq Composite COMP, -0.19%  was off by 0.4%.

Read: Will an ‘unsustainable’ rally in stocks and bonds extend a soaring quarter for ‘sleep-easy’ portfolios?

Meanwhile the ICE Dollar Index, DXY, -0.38% a measure of the greenbacks value against six of rivals, was 0.4% lower at 97.015 as traders sought cover in haven currencies including the Japanese yen and Swiss franc.

The Japanese yen, USDJPY, -0.30% rose 0.4% to ¥111.33 and the Swiss franc USDCHF, -0.1700%  added 0.3% to 0.9976.

Elsewhere the British pound GBPUSD, +0.1074%  was mostly unchanged at $1.3046 as investors eye whether Prime Minister Theresa May can strike a Brexit deal with the opposition Labour Party.

“If she [Theresa May] could secure an agreement, she would then be expected to head to Brussels to obtain a Brexit deal which may get her a majority in the House of Commons. Until this happens, the danger of a ‘no deal’ happening remains valid,” wrote Dean Popplewell, VP of Market Analysis at Oanda.

Read: Brexit Brief: Theresa May running out of time and options

The euro EURUSD, +0.4725%  benefited from the broad-based dollar weakness, trading to $1.1266 versus $1.1218.

Read: Don’t Look Now, but the Stock Market Is Almost at a Record High

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