Lira extends losses on election unease, dollar gains

The Turkish lira weakened on Wednesday in response to dollar strength and with investors unsettled by some surveys which indicate the ruling AK Party may have to form a coalition government after the June 7 election.
On Wednesday, the lira weakened to 2.6635 against the US currency from 2.6359 late on Tuesday, bringing losses this year to 12 percent — one of the worst performances among emergency market currencies. Investors are uneasy both with the prospect of a coalition or of a very strong AK Party majority enabling it to push through constitutional reforms needed for Recep Tayyip Erdogan to realize his ambition of a strong executive presidency. andquotThe market was hoping for a small majority so that constitutional amendments would be too hard to pass but there would still be a high level of governability,andquot said Kieran Curtis, EM debt portfolio manager at Standard Life Investments in London.
Emerging markets were hit by prospects of an upcoming US interest rate rise after this weekand’s US data showed a rise in business spending plans, consumer confidence and house prices and Turkey was among the main concerns. andquotThere are a few indicators that suggest Turkey is probably the most exposed country to Fed tightening and we are not comfortable with the amount of credit thatand’s been extended in the past few years,andquot Curtis added. A survey by Turkish pollster Andy-AR on Tuesday put AKP support at 41.9 percent, the main opposition Republican Peopleand’s Party (CHP) at 25.8 percent, the nationalist MHP at 16 percent and the pro-Kurdish HDP at 10.7 percent, above the 10 percent threshold needed to enter parliament.
It was the third survey in a week indicating the AK Party might lose its parliamentary majority. However other polls have indicated it will be able to form a single-party government. Election authorities have set Wednesday as the deadline for publishing polls. Another concern among investors has been President Erdoganand’s pressure on the central bank to lower interest rates to boost flagging growth, but the bank has held rates steady at recent meetings and on Wednesday reiterated its cautious stance.
andquotInflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained … until there is a significant improvement in the inflation outlook,andquot it said in the minutes of its May 20 policy meeting. Shares were also lower, with the main share index Borsa Istanbul (BIST) falling 0.62 percent to 83,132.33 points. The benchmark 10-year bond yield dipped to 9.27 percent rose to 9.28 percent from 9.29 percent on Tuesday.

SOURCE: Today’s Zaman