Lira Jumps to 6-Day High Versus Euro After Valuation Warning

The lira climbed to its strongest in almost a week against the euro after the common currency weakened against major peers as Luxembourg Prime Minister Jean-Claude Juncker said the strength of the euro poses a threat to the region’s economy.

The Turkish lira gained 0.2 percent against the dollar to 2.3492 at 5:07 p.m. in Istanbul, the strongest since Jan. 10. Yields on benchmark two-year notes fell 2 basis points, or 0.02 percentage point, to 6 percent.

The euro’s 8 percent gain against the U.S. dollar in the past six months is posing a fresh threat to the European economy and the euro is trading at “dangerously high” levels just as it shows signs of escaping the debt crisis, Jean-Claude Juncker, who leads the group of euro-area finance ministers, said late yesterday

“Today policymakers have several times mentioned the euro’s valuation,” Aurelija Augulyte, an emerging-market strategist at Nordea Markets in Copenhagen, said in e-mailed comments. “It seems currency war is not only Turkey’s concern and is becoming more widespread.”

Turkey’s central bank governor Erdem Basci said in November that a reading above 120 on its real exchange rate index would be cause for concern, suggesting the lira was becoming overvalued.

The European currency dropped as much as 0.9 percent after Juncker’s comments, the biggest intraday decline since Jan. 3.

‘Downside Pressure’

“Correction in euro/dollar is also source of downside pressure on euro/lira (there is strong correlation between those crosses),” Piotr Matys, an emerging markets analyst at 4Cast Ltd in London, said in e-mailed comments.

The lira has gained 0.9 percent against the dollar so far this month, the second-biggest appreciation among emerging-market currencies in Europe, the Middle East and Africa after the Romanian leu, according to data compiled by Bloomberg.

Turkish two-year note yields fell 483 basis points last year in the biggest retreat globally among emerging markets as the central bank cut the average cost of funding for lenders to 5.51 percent on Dec. 25 from 11.93 percent on Jan. 6, 2012, as economic growth slowed to 1.6 percent in the third quarter, the lowest since a 2009 recession.

Policy makers lowered the benchmark repurchase rate in December by 25 basis points to a record 5.5 percent.

The Turkish Treasury completed this month’s sales yesterday, raising 12 billion liras of debt in five auctions versus its monthly domestic borrowing target of 11.6 billion liras. It plans to auction 34.6 billion liras of debt this quarter, up 89 percent from the last three months of 2012.

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