Lira Weakens on Europe’s Debt Concern, Reduced Dollar Sales

The lira depreciated from a three week high against the dollar on concern that Europe’s debt crisis will worsen and amid speculation the central bank reduced its U.S. currency sales.

The lira weakened 0.5 percent to 1.8828 per dollar at 5:08 p.m. in Istanbul, the second time in three days. Turkey’s currency closed yesterday at 1.8735, the strongest level since Dec. 12.

“Overall the market is currently in risk-off mode as bad news out of the Eurozone are hitting the wires again,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments.

The European Central Bank reported overnight deposits from financial institutions rose to an all-time high and Luxembourg Prime Minister Jean-Claude Juncker said the European Union is facing a recession of unknown scope. Turkey sells half of its exports to Europe.

Turkey’s central bank probably sold between $200 million and $250 million today including $100 million in its daily dollar sale auction, Burcin Metin, chief currency trader at ING Bank AS, said in e-mailed comments. This would be its lowest dollar sale since Dec. 29 when it began tightening lira liquidity to support the currency.

The bank has withheld lira funding at the benchmark rate of 5.75 percent since Dec. 28 and lent 3 billion liras in a one- week repo auction yesterday at an average annual rate of 11.86 percent. The lira lost 18 percent last year as inflation accelerated to 10.5 percent in December, the fastest pace in three years.

Yields on the two-year benchmark note (TRABNBM) fell 10 basis points, or 0.1 percentage point, to 11.43, declining from its highest since July 2009, according to the RBS Istanbul Benchmark Bond Index.

To contact the reporters on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net; Steve Bryant in Ankara at sbryant5@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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