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Lira crisis weighs on rest of EM currencies

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Turkey is back in the headlines as the local elections that will take place at the end of the month, will be a referendum on President Erdogan.  Just last summer, Erdogan won a fresh mandate with Parliamentary and Presidential wins.  The economy has not improved and Turkey is back in crisis mode.

About a month ago, Turkish stocks entered bull market territory, inflation was slowly coming down from the recent 15-year highs and optimism was improving for emerging markets after the Fed signaled they will be keeping rates on hold throughout the rest of the year.

Overnight, foreign investors were unable to hedge their risks to the lira as swap rates jumped past 1,000 percent.  Local banks are being pressured to not provide liquidity to foreign investors and we are seeing them scramble for hedges by selling other emerging market currencies.  These actions by Erdogan will potentially scare investors from wanting to invest in Turkey in the future.  The Turkish lira is down 1.4% to the dollar and trading around the 5.4182 region.

Other emerging market currencies are under pressure. The South African rand is lower by 1.1% at 14.5805.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
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