Holiday Hangover Awaits Turkey’s Lira as 10-Day Rally Sputters

(Bloomberg) -- Turkish lira traders returning after the Ramadan holiday will have to make do with a look in the rear-view mirror at the currency’s best run in half a decade. More political upheaval on the way means it could be a long wait before there’s a comparable winning streak.

The lira fell for a second day on Friday after a 10-day run of gains, the longest streak since May 2014. Turkish traders sat out much of that because of the three-day holiday.

While they were away, emerging-market concerns resurfaced, with Mexico downgraded by Fitch Ratings and political tension mounting before a re-run of the Istanbul vote on June 23. The lira was the biggest loser among developing-nation currencies Friday, weakening as much as 1.5% and trading down 1.2% at 5.8497 per dollar by 10:42 a.m. in Istanbul.

“While the carry-friendly market environment seems favorable for the Turkish lira at first glance, traders should remain cautious with their long-lira positions in the coming weeks,” said Ipek Ozkardeskaya, a senior market analyst at London Capital Group. “The rally could be short-lived if carry traders get out of their long-lira positions before the political scene gets ugly again.”

Optimism over a dovish tilt by the Federal Reserve supported emerging-market currencies this week, while slowing inflation boosted the relative allure of yields on Turkish debt, helping the lira clock up a 5% gain in the past month, the most worldwide.

--With assistance from Constantine Courcoulas.

To contact the reporter on this story: Selcuk Gokoluk in London at sgokoluk@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Robert Brand, Srinivasan Sivabalan

©2019 Bloomberg L.P.