Lira Strengthens to Six-Month High on Foreign Investor Demand

The lira rallied to a six-month high against the euro amid speculation Turkey’s currency will strengthen further as investors seek higher-yielding assets.

The Turkish currency advanced 0.5 percent to 2.3493 against the euro at 6 p.m. in Istanbul, the biggest one-day gain among 25 emerging-market currencies tracked by Bloomberg after the Russian ruble and South African rand. That took the lira to its highest level since July 20. The lira rose 0.5 percent versus the dollar to 1.8531.

The lira may appreciate to a fair value of 2.20 per euro, Deutsche Bank AG said in a report on Jan. 12, citing an “attractive” carry trade and “solid state finances.” Turkey’s estimated total return is 4.9 percent by the second quarter of 2012, the highest rate among developing nations, according to data compiled by Bloomberg.

“We see investors based abroad continue to sell euros versus the lira, there is demand for high-yielding currencies,” Emir Baruh, a currency trader at Akbank TAS in Istanbul, said in e-mailed comments.

The yield on Turkey’s 10-year bonds is 9.4 percent, the second-highest in central and eastern Europe after Hungary, data compiled by Bloomberg shows. That compares with 1.8 percent for the euro area and 1.9 percent in the U.S, the data show.

Turkey’s budget deficit narrowed to about 1.4 percent of gross domestic product last year, the smallest gap since 2006, from 3.6 percent in 2010, Finance Minister Mehmet Simsek said today at a news conference.

The lira broke its 200-day moving average versus the euro on Jan. 6 and has traded stronger than its 50- and 100-day moving averages for the past month. The 200-day moving average was 2.4043 today, according to data compiled by Bloomberg.

Automatically traded portfolios sent orders to sell euros for liras after the lira broke the 200-day average, Baruh said.

The Turkish central bank didn’t sell dollars today at its daily auctions because of a U.S. holiday. The bank has sold at least $15 billion since August to shore up the lira, which dropped 18 percent last year in the biggest depreciation among emerging-market currencies.

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