Calls to Buy the Lira Turn Into Confessions of Shock and Loss
Calls to Buy the Lira Turn Into Confessions of Shock and Loss
(Bloomberg) -- One after the other, banks pulled their recommendations to buy the lira.
Societe Generale SA, Royal Bank of Canada and Credit Agricole reversed their calls for gains in the lira following the ouster of Turkey’s central bank governor. The lira slumped against all of the world’s major currencies as President Recep Tayyip Erdogan’s decision to replace Murat Cetinkaya fueled concern that interest rates will be lowered faster than warranted.
“The unexpected replacement of Governor Cetinkaya by President Erdogan over the weekend is a real game-changer,” Guillaume Tresca, senior emerging-market strategist at Credit Agricole in Paris, wrote in a report. “It clearly means the CBRT is not independent, and we expect significant rate cuts on 25 July.”
Credit Agricole closed its short dollar position against the lira with a loss -- just days after recommending the trade. SocGen’s call to buy the lira against the South African rand only lasted a week. Royal Bank of Canada is exiting its long-lira wager against the rand, even though it didn’t lose on the trade. Short-term risks are building given the looming threat of U.S. sanctions and delivery of S-400 missile defense systems from Russia due this week, according to the Toronto-based bank.
Yet even before Monday’s lira declines, the currency had been struggling to gain traction against the rand. That’s despite expectations the Turkish central bank would start cutting to support growth and keep inflation in check.
Meanwhile, South Africa’s commodity exports stand to gain from global central banks’ shift to a dovish stance. Its own central bank’s preparation for a rate cut also stands to support the economy and the currency longer term, and help it shrug off Eskom Holdings SOC Ltd.’s cloud hanging over sentiment in the short term.
To contact the reporters on this story: Netty Ismail in Dubai at nismail3@bloomberg.net;Benjamin Dow in Moscow at bdow2@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Paul Wallace
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