Lira Gains as Signs of Economic Cooling Boost Investor Sentiment By Bloomberg

© Reuters. Lira Gains as Signs of Economic Cooling Boost Investor Sentiment

(Bloomberg) — The lira gained to buck a drop in most emerging-market currencies as data showed the Turkish economy has started re-balancing after months of overheating.

The exchange rate touched its strongest level since mid-August and tested a key psychological level against the dollar. The advance was supported by speculation over the potential for a detente between Turkey and its western allies.

The country’s September purchasing manufacturing index fell to 42.7, from 46.4 in August. Exports rose 22.6 percent in September from a year earlier while imports declined 18.1 percent, preliminary data showed Monday. Investors have been concerned about the current-account deficit following pro-growth policies by President Recep Tayyip Erdogan.

The lira has lost more than a third of its value this year as monetary and fiscal policy remained too loose to anchor the nation’s assets against a resurgent dollar. Turkey’s central bank raised rates aggressively last month in a bid to support the currency, with investors now watching for an end to a diplomatic spat with the U.S.

The lira gained as much as 1.6 percent to 5.9581 per dollar. While the dollar-lira pair has been probing the 6.00 level over the past few sessions, the “missing element” for a decisive break is an improvement in relations between the U.S. and Turkey, said Piotr Matys, a currency strategist at Rabobank. The next target is the Aug. 16 low at 5.6968, he said.

Erdogan met with German Chancellor Angela Merkel last week, a sign that he is trying to patch up rocky relations with the European Union. Some investors are also hoping that a jailed American pastor will be released at a hearing on Oct. 12 to end a diplomatic standoff that saw Washington impose sanctions against NATO ally Turkey.

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