Turkish Lira Experiences Decline

Turkish Lira, the major currency of Turkey is heading towards the lowest level against USD since January, 2012. The benchmark 2-year yield, on the other hand, is heading towards the highest level in more than 7 weeks. Lira declined by 0.5% on today and it is currently at 1.8707 per USD. This is the lowest level on a closing basis for Lira since January, 2012. Right in May, the currency has lost 4.2% against USD, whereas, the analysts had predicted a drop to 1.91 per USD by end of the current year. On the other hand, the 2-year yields increased by 27 basis points and the same are at 5.79%. These have jumped up for the 3rd straight day and are heading towards the highest level since 10th April.

According to the Strategist of Toronto-Dominion Bank, Cristian Maggio, as there are speculations that the Federal Reserve will be curbing the monetary easing earlier than the initial expectations, the US yields are being pushed higher. This, in turn, is pulling all the emerging market curves higher and most probably steeper. Maggio added that investors are currently reducing the positions as they have no intentions of getting hammered by an interest rate hike by the Government. The Federal Reserve currently buys Treasury and mortgage debt worth $85 billion in each month to support the biggest economy in the world.

Maggio added further that if the US Treasuries experience higher movements, the selloff in the Turkish curve, by all means, will continue. This can actually have an adverse effect on Lira. However, if things change, it is possible for Turkey to outperform on both high correlation with US and cheap valuations.

The MSCI Emerging Markets Index experienced a decline of 0.7% and the same is currently at 1,013.67. Thereby, the index is actually heading towards the lowest level of the same since 23rd April. On the other hand, the Borsa Istanbul National 100 Index went ahead by 0.1% and the same is currently at 87,294.66. Therefore, the gauge has surged ahead for the first time in the last 6 days.

According to the Portfolio Manager of Renaissance Asset Managers, Aziz Unan, the increase in yields gives the signal to the Central Bank of Turkey that they should not decrease the interest rates any further, at least in the short term future. The interest rate is now at 4.5%.