Turkey’s struggling currency has nosedived, breaching 6.24 against the U.S. dollar in Thursday trading, the worst it has reached in the last eight months.
The currency’s troubles in the emerging markets come at a time the country faces new uncertainty following an announcement that Istanbul would have a new round of elections.
As well, credit default swaps spiked, rising 11 basis points (bps) today to see it top 483 bps this was the same level the swaps reached when the country was preparing for local elections at the end of March.
At around midday Istanbul time, the lira traded at 6.225 against the USD, cutting the week’s losses after Turkey’s central bank moved to suspend repo auctions. Despite this measure, the currency appears to be headed down, a curve it has been on for the last year.
The lira is already tagged the worst-performing currency in emerging markets and has gone down further as it traded at 5.9642 to the dominant U.S. dollar at the end of last week. In 2018, the lira dropped 40% and current value doesn’t compare to 3.5 it traded against the dollar in June 2017.
Turkey’s currency has suffered over the last several months due to the delicate political landscape coupled with an alleged weak foreign currency reserve. There have been tensions cropping up now and then with the United States as well as current account deficits.
Furthermore, despite the pressure exerted by the government, the country’s central bank has steadfastly refused to hike interest rates. This even as the country’s official inflation rate now close to 20%.
Analysts have noted the anticipated elections for the Istanbul district slated for June 23 will only exacerbate the situation. It also only serves to add more delays to crucial economic reforms that are expected from President Recep Erdogan.
Meanwhile, the Japanese yen soared against the U.S. dollar and rose to a three-month high today morning. The surge comes as traders apparently seek to have their money in a safe-haven currency, with the overall sentiment being that there’s a lot of uncertainty around the U.S.-China trade talks.