Lira Set for Biggest Gain in 2 Weeks as Turkey Bonds Rise on Fed

The lira headed for its biggest gain in two weeks and Turkey’s bond yields dropped as the central bank sold dollars for a sixth day and on speculation the U.S. Federal Reserve will hold back from cutting monetary stimulus.

The currency appreciated 0.8 percent, the most on a closing basis since June 13, to 1.9232 per dollar at 3:11 p.m. in Istanbul. Yields on two-year benchmark notes slumped 29 basis points, or 0.29 percentage point, to 7.85 percent, declining for the first time in three days.

The U.S. economy expanded at a slower pace than estimated, according to data released yesterday, spurring speculation the Fed may not start reducing its $85 billion of monthly bond purchases this year. Turkey’s central bank has sold $1.45 billion since June 11, including today’s $150 million, to curb volatility in the currency. The lira hit a record low of 1.9602 per dollar on June 24.

“Until the markets have a clearer idea on when stimulus will be unwound, we may see extreme moves in both directions,” Inan Demir, the chief economist at Finansbank AS in Istanbul, said in e-mailed comments.

U.S. gross domestic product grew at a 1.8 percent annualized rate from January through March, down from a prior reading of 2.4 percent. The yield on the 10-year U.S. Treasuries fell for a second day to 2.491 percent.

Nineteen of 24 emerging-market currencies strengthened against the dollar today, according to data compiled by Bloomberg. The lira has depreciated 2.5 percent this month and 5.9 percent in the second quarter as Prime Minister Recep Tayyip Erdogan’s government faced the biggest protests in a decade.

“Emerging-market currencies like the lira are taking a breather with the recent decline in U.S. yields,” Demir said.

Yields on Turkish two-year notes surged 306 basis points since they hit a record low of 4.79 percent on May 17. The anti-government protests errupted in the country at the end of last month.

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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