Turkish lira surpasses 17.5 against the dollar – ‘Flirting’ with December 2021 all-time lows

The Turkish lira fell against the dollar on Thursday after the United States reported a pick-up in inflation, raising the possibility of more substantial rate hikes by the Federal Reserve.

The lira fell to 17.5 per dollar for the first time since December, when the country suffered a severe currency crisis that forced the government to peg Turkish lira bank deposits to the dollar, in a move that was promoted with much fanfare. by the government of Recep Tayyip Erdogan, however, it did not bring the expected results.

The currency was trading down 0.4% at 17.5 per dollar as of 12:15 p.m. local time in Istanbul. During the session it reached as high as 17.53 per dollar earlier in the day.

Higher interest rates in the United States and other developed markets are reducing the attractiveness of riskier emerging market assets such as Turkish stocks and bonds.

Turkey’s efforts to grow its economy have included lowering interest rates despite higher inflation, reducing yields for foreign and domestic investors on public debt. Benchmark 10-year sterling bond yields are at 19% a year, while inflation has soared, officially at least, to 78.6%, the highest level in emerging market and industrial economies.

Inflation in the United States expanded to a four-decade high in June, accelerating to 9.1 percent, Labor Department data showed on Wednesday.

The U.S. inflation report has cemented prospects for a Federal Reserve rate hike of at least 75 basis points at its July meeting, bolstering the greenback, online trading platform IG said in a report on Thursday. The pound could weaken to 18 per dollar if the dollar’s upside remains intact, it said.

On Friday, ratings agency Fitch further downgraded Turkey’s government bonds to “junk”, citing rising inflation and broader concerns about the economy. Fitch said inflation could average 71.4% this year.

Petros Kranias