Turkey’s lira slumped for a fourth day to a new record low, with the selloff spreading to other emerging-market currencies, after the country’s president showed no signs of backing down in a standoff with the US.
The lira tumbled as much as 11 percent against the dollar in thin trading in Asia, before trimming losses after the nation’s Banking Regulation and Supervision Agency stepped in to limit swap transactions on the battered currency.
Turkey will announce measures to calm markets on Monday, according to Treasury and Finance Minister Berat Albayrak, Hurriyet newspaper reported.
“Turkey’s friction with the U.S. is weighing on the lira, and is unlikely to improve anytime soon,” said Takashi Kudo, head of financial markets research at Fujitomi Co in Tokyo.
“Concerns are also growing about European financial institutions due to their exposure to Turkey. All in all, emerging-market currencies are under weakening bias from all those problems.
”The Turkish currency has been a casualty of a deepening crisis spurred by the administration’s growth-at-all-costs agenda and a worsening spat with the US, which sanctioned Turkey over the detention of an American priest.
The lira’s plunge sparked tremors through global markets on Monday, dragging a gauge for emerging-market currencies to the lowest in more than a year.
The lira had dropped to as low as 7.2362 against the dollar, with some banks said to avoid providing two-way prices amid unprecedented volatility, before trading at 6.8250 at 1:07 p.m. in Tokyo.
The South African rand fell to its weakest in more than two years, while the Mexican peso and the Indonesian rupiah also declined.
The sell-off also represents a vote of no-confidence in a new system of government that earlier this year handed President Recep Tayyip Erdogan unrivaled authority, essentially paralyzing the bureaucracy in Ankara.
In speeches Sunday, Erdogan remained defiant, vowing never to give in on interest-rate hikes while saying the country is in an “economic war.”
He also ruled out an agreement with the International Monetary Fund.
“The decline in the lira is multifaceted, caused not only by a weak external position in terms of current account deficit and inadequate currency reserves, but also the challenging political environment which exacerbates the vulnerabilities in the lira,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management.
The extended rout in the lira also weighed on the euro and the Australian dollar, while spurring haven demand. The euro fell 0.3 percent against the greenback, while the yen strengthened against every Group-of-10 peer and Treasuries were bought. (bbn)