Türkiye's lira held near a two-month low in early trading, and the cost of insuring exposure to the country's debt spiked, as the country's presidential race appeared on track for a runoff.
The lira was trading at 19.64 to the dollar at 0608 GMT, after falling to a two-month low of 19.70 in the opening hours, not far off the lowest level hit this year following deadly earthquakes in February.
It was on track for its worst trading session since early November.
Parties of both incumbent Recep Tayyip Erdogan and opposition rival Kemal Kilicdaroglu were claiming the lead after Sunday's presidential and parliamentary election, but sources in both camps admitted they may not clear the 50% threshold to win outright.
"This is a major disappointment to investors hoping for a win for opposition candidate Kilicdaroglu and the reversion to orthodox economic policy he promised," said Hasnain Malik, head of equity research at Tellimer.
The five-year Türkiye credit default swap spread TRGV5YUSAC=MG jumped 105 basis points (bps) from Friday's levels to 597 bps, according to S&P Global Market Intelligence, the highest since November 2022.
The presidential vote will decide not only who leads Türkiye and shapes the foreign policy of the NATO-member country of 85 million people, but also how it is governed and how it tackles a deep cost-of-living crisis.
Analysts expect the lira to slump in the wake of the elections following years of economic imbalances and unorthodox monetary policy.
JPMorgan forecast the lira could soften to levels of 24-25 to the dollar. Goldman Sachs said in a note in recent days that its calculations showed the market was pricing the lira to weaken by 50% in the next twelve months, including a sharp devaluation post-election.
The lira, which is prone to sharp swings before regular trading hours, has weakened 5% since the start of the year.
The currency has lost almost 95% of its value over the last decade and a half as sugar-rush economic policies have led to spectacular boom and bust cycles and rampant bouts of inflation and currency market turmoil.
A potential second election round is scheduled for May 28.
