The Turkish lira resumed its sharp fall on Wednesday on investor worries of a full-blown currency crisis and as a firm dollar made it more vulnerable to a squeeze, while emerging market stocks fell on doubts over coronavirus aid in the United States.
The lira weakened 1.7% to 7.32 against the greenback, as investors looked for more substantial moves from the Turkish central bank to stave off a meltdown in the currency amid concerns over depleted reserves and costly state FX interventions.
The central bank's decision to halt cheaper funding that had allowed primary dealers to borrow well below its policy rate helped support the lira in the previous session but the optimism did not carry through to Wednesday.
Commerzbank FX analyst, Esther Reichelt, said these backdoor channels to stabilize the currency should be regarded as temporary.
"Credible and permanent interest rate hikes are necessary to control inflation and stabilize the Turkish lira. It is therefore probably only a matter of time before USD-TRY trades above 7.40."
The dollar extended a bounce from last Friday against a basket of currencies as US-China tensions ratcheted higher following President Donald Trump's ban on US transactions with the China-based owners of video-sharing app TikTok and messaging app WeChat.