Turkey: Lira Nears Record Low

Turkish lira banknotes are seen in this picture illustration in Istanbul, Turkey August 14, 2018. REUTERS/Murad Sezer/Illustration
Turkish lira banknotes are seen in this picture illustration in Istanbul, Turkey August 14, 2018. REUTERS/Murad Sezer/Illustration
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Turkey: Lira Nears Record Low

Turkish lira banknotes are seen in this picture illustration in Istanbul, Turkey August 14, 2018. REUTERS/Murad Sezer/Illustration
Turkish lira banknotes are seen in this picture illustration in Istanbul, Turkey August 14, 2018. REUTERS/Murad Sezer/Illustration

Turkey's lira edged close its all-time low on Friday, driven by fleeing foreign investors but mitigated by local bargain hunting, a day after the central bank unexpectedly cut interest rates and gave little hint how low it could go.

The currency - prone to sharp swings and an emerging-markets laggard for several years now - weakened 1% to 8.855 versus the dollar by 0749 GMT, near its low water mark of 8.880 set in June.

The lira also dove on Thursday when the bank slashed its key rate by 100 basis points to 18% despite high inflation, delivering the stimulus long sought by President Recep Tayyip Erdogan and reinforcing analysts' worries over political interference.

The central bank provided little guidance on the future path of policy, yet Societe Generale, Barclays, JPMorgan, and Goldman Sachs all said they expect further rate cuts in coming months.

Still, after a years-long exodus of foreign funds from Turkish assets, the lira's fate is largely in the hands of local businesses, investors and savers.

Traders said sales of dollars and other hard currencies by Turks was instrumental in limiting the lira depreciation on Thursday, when corporates and individuals sold $1 billion-$2 billion according to the calculations of four traders.

"The central bank's decision, which was unexpected for some, put the lira under serious selling pressure. But seeing it as an opportunity, locals' forex sales of at least $1 billion was the main factor limiting the losses," said a trader who requested anonymity.

Turks who bought dollars a year ago booked a 15% profit, traders noted. Locals also snapped up lira in March when it plunged after Erdogan fired a hawkish central bank chief and installed Sahap Kavcioglu as governor.

Kavcioglu began giving dovish signals early this month, paving the way for a cut - though few economists polled by Reuters had expected it this month given inflation reached 19.25% in August.

Foreign investors hold just over 5% of Turkish government bonds, down from more than 20% five years ago. That slide is largely due to double-digit inflation and worries over central bank credibility, after Erdogan ousted the central bank's last three governors over a 20-month span due to policy disagreements.

Phoenix Kalen, strategist at Societe Generale, predicted a gradual pace of lira depreciation given Turkish retail investors are highly skeptical about the central bank's willingness to get inflation down to a 5% target.

"Retail flows now largely determine the course of the currency, not international market participants," she wrote.

"So, it comes down to a question of public confidence and how fast that picture might deteriorate."



Dollar Recovers as Trump Proposes Canada, Mexico Tariffs

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
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Dollar Recovers as Trump Proposes Canada, Mexico Tariffs

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The US dollar rose on Tuesday, recovering from its biggest daily percentage drop in 14 months after President Donald Trump suggested the US could impose tariffs on Canada and Mexico by Feb. 1, countering expectations he might take a gradual approach.

Trump told reporters he was thinking about implementing tariffs of around 25% on imports from Canada and Mexico at the start of February over illegal immigrants and fentanyl crossing into the country. He also raised the possibility of a universal tariff but said the US was "not ready" for that yet.

The dollar fell sharply on Monday after Trump's first day in office passed with no specific plans on tariffs and officials said any new taxes would be imposed in a measured way, a major relief for trade-exposed currencies, Reuters reported.

"What you're seeing here, too, is just how crowded long dollar positioning is, so all you need is some ambiguity on the tariff front, and you get these kind of moves," said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto.

"The bigger outside moves are going to come now if we see some deals happening, some stuff being negotiated and some of this fear getting priced out. The dollar positioning is long enough that you're going to see some smart people trying to bet on a turn."

The dollar index, which measures the dollar against a basket of currencies, rose 0.32% to 108.33 after dropping 1.24% on Monday. It was up as much as 0.68% earlier in the session.

The euro was down 0.22% at $1.0391. The EU is also seen as a likely target for Trump's tariff policies. Sterling weakened 0.26% to $1.2291.

Talking to reporters on Monday, Trump said he would remedy the trade imbalance either through tariffs or by Europe buying more US oil and gas.

A subsequent trade memo directed agencies to investigate and remedy persistent trade deficits. Analysts at Jefferies said the memo should be seen as a "blueprint for what to expect next on tariffs," and April 1 will be an important date as the agency reports are due by that date.

The Canadian dollar weakened 0.8% versus the greenback to C$1.44 per dollar while the Mexican peso was down 0.86% versus the dollar at 20.698.

The inauguration speech focused on emergencies in immigration and energy and a more expansionist foreign policy, including a pledge to take back the Panama Canal.

In his first term in office, Trump had a history of announcing imminent plans for policy proposals, including on healthcare and infrastructure, only for nothing to take shape.

Against the Japanese yen, the dollar weakened 0.11% to 155.42.

The yen has strengthened against the dollar in three of the last four sessions, supported by growing expectations the Bank of Japan will raise interest rates on Friday.

Japan's top currency diplomat Atsushi Mimura said on Tuesday at a Reuters NEXT Newsmaker event that a weak yen would increase inflation by boosting import costs. Mimura said the government and the central bank were communicating closely every day through various channels.

Markets are pricing an 86.2% chance of a quarter-point increase.

The dollar strengthened 0.23% against the offshore Chinese yuan to 7.278. Trump has threatened China with tariffs of up to 60% but did not detail any plans on Monday.

Beijing later set a stronger fix for the yuan, suggesting it was still inclined to take steps to prop up the currency.