Turkish Lira Extends Third Weekly Drop on Bets Fed to Raise Rate

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Turkey’s lira fell, extending its third weekly decline, after data showing U.S. payrolls rose last month bolstered bets the Federal Reserve will lift interest rates as soon as September.

The currency slid as much as 0.6 percent, before trading 0.2 percent lower at 2.7808 per dollar as of 6:10 p.m. in Istanbul. Employers in the U.S. added 215,000 jobs in July and the unemployment rate held at a seven-year low of 5.3 percent, demonstrating further strength in the labor market. Turkey’s reliance on capital inflows to finance its current-account gap makes it among the most vulnerable economies to a U.S. rate increase.

Fed Chair Janet Yellen’s stated intention to lift borrowing costs at a gradual pace has weighed on Turkish assets, sending the lira down 16 percent this year in the third-biggest drop among 24 developing nations. Investor sentiment has also been dented by mounting security risks and uncertainty after inconclusive elections in June. Most economists surveyed last month by Bloomberg projected a Fed lift-off in September.

“The lira weakness reflects the general depreciation pressure across emerging-market currencies, which is in turn due to pessimism toward emerging-market growth and expectations of Fed hikes,” Koon Chow, a senior macro and foreign-exchange strategist at Union Bancaire Privee in London, said by e-mail. “Today’s payroll data leaves the Fed on track to deliver a small hike in September.”

Credit-ratings company Moody’s Investors Service may on Friday publish its review of Turkey’s rating, which currently stands at Baa3, the lowest investment grade, with a negative outlook.

“If Moody’s were to downgrade -- not my baseline scenario -- the lira could start falling even quicker,” Chow said.

Data next week may show Turkey’s current-account deficit shrank to $3.2 billion in June from $4.2 billion in the same period last year, according to the average estimate of 13 analysts in a Bloomberg survey.

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