Dollar surges above 2.19 against lira as bets on early US rate hike tweaked

ISTANBUL - Reuters

The lira weakened to 2.1940 against the dollar from 2.1660 late on Sept. 8.

The Turkish Lira has weakened to its lowest level in over five months, exceeding 2.19 against the dollar, after a study by Federal Reserve economists suggested that investors were underestimating the chances of an early U.S. interest rate hike.

The lira weakened to 2.1940 against the dollar from 2.1660 late on Sept. 8.

The Turkish currency’s slide eased later in the morning but it was still being traded at the 2.1921 level as of 11:45 a.m.

The last time the lira/dollar ratio rose above the 2.19 level was March 31, when political concerns over politics and stability in the country peaked amid the local elections.

Istanbul’s main share index also fell 0.7 percent to 81.625 points, compared with a 0.28 percent drop in the broader emerging markets index.

The benchmark 10-year government bond yield fell to 8.97 percent from 8.95 percent on Sept. 8 while the benchmark 2-year government bond yield was unchanged at 8.89 percent.

Turkey is especially sensitive to changes in global liquidity conditions because of its large current account deficit, which is financed with foreign capital inflows that have stayed strong during the long period of ultra-loose U.S. monetary policy.

Any concerns those flows might slow tend to hit Turkish assets.

The study released on Sept. 8 by economists at the San Francisco Fed found investors expected the U.S. Federal Reserve to keep interest rates lower for longer and raise them more slowly than the makers of U.S monetary policy themselves.

“Even though a recent drop in oil prices leads to downward pressure on Turkey’s current account deficit, volatility may increase in Turkish markets in the coming days due to ongoing uncertainties in global financial markets,” wrote Inanc Sozer, an analyst at Odeabank in a note.