The Turkish lira rallied to a five-week high on speculation a selloff triggered by concern over the outcome of next month’s general election had gone too far amid a global rout in the dollar.
The currency strengthened 1.1 percent to 2.6023 per dollar at 6:40 p.m. in Istanbul, the highest level since April 9 and the biggest gainer among 24 emerging-market peers after Brazil’s real. The lira has recovered 3 percent of its value this month, trimming losses in 2015 to 10 percent.
Parliamentary elections on June 7 have been a key drag on the currency this year as some polls signaled the ruling AK Party may not win enough seats to govern alone. Some investors are also concerned that President Recep Tayyip Erdogan will seek to change the constitution to switch to a presidential system from a parliamentary one if the AK Party, from which he hails, commands a large enough majority.
“Lira strength today and over recent days has been partly driven by short covering, as investors remove some of their bearish Turkey positions and take profits in the weakness before elections,” Phoenix Kalen, an emerging-market strategist at Societe Generale SA in London, said by e-mail. “The additional catalyst has been the dollar weakness.”
The Bloomberg Dollar Index fell for a third day, heading for the lowest level in four months. Turkish bonds climbed for the sixth day, sending the yield on two-year notes four basis points lower to 9.53 percent.
Some polls suggest the AK Party will retain its ability to govern alone, “though with declining levels of support,” Kalen said. “This would be an overall positive outcome.”
While investors are closing short positions before the vote, the lira could go either way depending on the results, according to Bhaveer Shah, a foreign-exchange strategist at Credit Suisse Group AG.
“The move in lira has not been driven by changing economic fundamentals,” Shah said by e-mail from London. “Not only is the outcome rather unpredictable from polls, but there’s potential for the lira reaction to go either way depending upon the details.”