Turkish lira falls on central bank adjustments, dollar and yen advances

  • Graphic: World Currency Rates https://tmsnrt.rs/2RBWI5E
  • The decline in the lira gives cause for concern for other emerging markets
  • Yen gains early on speculation about Japanese private investors
  • Risk aversion supports the dollar against other currencies

TOKYO, March 22 (Reuters) – The Turkish lira fell to record lows against the dollar after President Tayyip Erdogan stunned investors over the weekend by replacing the restrictive central bank governor with a critic of high interest rates. Continue reading

The yen rose against the euro and antipodal currencies on speculation that Japanese investors who have recently bought the lira because of its high interest rates will reduce their losses and close out their positions.

Fears that events in Turkey will cause disruption to other financial markets also propped up the dollar because of its safe-harbor currency status.

“Other emerging markets are not in the same position as Turkey, but there could still be contagion,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“There are concerns that people will take profits in other markets. This seems like a time to rethink your investment strategy as the rotation into higher-yielding emerging market currencies will be suspended.”

The Turkish lira was at 8,0500 per dollar, 10% less than its closing price on Friday.

At one point, the lira fell as much as 14.9% to 8,4850, which is close to a record low of 8,5800.

Analysts said they are prepared for bigger moves as more investors enter the markets later in the day.

The yen strengthened against the euro, Australian dollar and New Zealand dollar, fueled by expectations that Japanese retail investors who lost money on the lira will unwind other popular cross-yen trades.

The dollar fell slightly to 108.82 yen, but stabilized against the British pound at $ 1.3851.

The euro fell slightly to $ 1.1892.

Erdogan fired the central bank governor just two days after a hefty rate hike designed to stave off nearly 16% inflation and prop up the lira. Continue reading

The new central bank governor will most likely result in a reversal of restrictive and orthodox moves to fight inflation, which could lead to continued market volatility, analysts said.

“After regaining investor confidence through a series of aggressive rate hikes, Turkey has torn defeat from the jaws of victory,” Brown, Brothers and Harriman analysts wrote in a memo.

Concerns that the turmoil could spill over into other emerging markets helped the dollar appreciate against the Thai baht, Indonesian rupiah and Philippine peso.

The onshore yuan remained stable against the greenback at 6.5085 after China left its corporate and household credit benchmark rate unchanged for the 11th straight month.

A decline in risk appetite weighed on the Australian dollar, which fell to $ 0.7724. The New Zealand dollar also fell slightly to $ 0.7155.

Further declines in the Aussie and Kiwi should be limited as both currencies will continue to benefit from rising commodity prices and an acceleration in world trade, said Yamamoto of Mizuho.

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Currency bid prices at 0512 GMT

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Tokyo Forex Market Information from BOJ

Reporting from Stanley White; Adaptation by Lincoln Feast and Gerry Doyle

Our standards: The Thomson Reuters Trust Principles.

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