Turkish lira, South African rand set for further losses this year

LONDON - Reuters

The Turkish lira has touched a record low of 2.39 in January and has fallen around 3 percent so far this year.

Turkey’s lira will weaken more this year, caught in the crosshairs of emerging market capital outflows and an ascendant U.S. dollar, according to a Reuters poll.

Investors and speculators have sold off emerging market assets since the U.S. Federal Reserve made clear late last year that it would gradually taper its massive monthly bond purchase program, which up until then had been propping them up.

As it became more clear the Fed intended to wind down the program by year-end, emerging market currencies got hit hard, although there has been a let-up in the selling over the last few weeks.

The Turkish lira, which has lost about a fifth of its value over the past year is expected to get hit by a political scandal that has gripped the government in Ankara.

A graft probe which led to the resignation of three ministers in December 2013 and shook Turkish Prime Minister Tayyip Erdoğan’s government unnerved investors further, particularly with elections looming in March and August.

Lira plummets to record lows

In January, the Turkish Central Bank raised all of its key interest rates in a dramatic move in an emergency policy meeting to defend a crumbling currency that is among the most vulnerable to another sell-off.

“We remain bearish on the longer term given our outlook on U.S. yields, emerging market growth and the risk that the important election year in Turkey brings a renewed pressure once again later in the year,” Anezka Christovova, FX strategist at Credit Suisse said.

The lira, which touched a record low of 2.39 in January and has fallen around 3 percent so far this year, is expected to trade at 2.25 to the dollar in a month, 2.27 per dollar in three and settle at 2.25 a dollar in a year.