Turkish Lira Gains as Cease-Fire Report Adds to Risk-On Rally

The lira extended its longest winning streak in four months after a report that autonomy-seeking Kurdish rebels will announce a cease-fire added strength to a rally spurred by bets that U.S. rates will remain near zero this year.

Turkey’s currency advanced as much as 1.1 percent to 2.9070 per dollar, climbing for a fifth day to the highest since Sept. 1. The Kurdish militant group PKK may announce a cease-fire on Oct. 11 before repeat elections on Nov. 1, Cumhuriyet newspaper reported, without saying how it got the information. The currency has weakened 20 percent against the dollar this year, the most among 24 emerging market currencies after Brazil’s real.

Turkey is on course for its second parliamentary elections in six months. Escalating tension between the government and Kurdish militant group PKK has compounded investor concerns about the deteriorating security situation after a peace process with the Kurds collapsed. Expectations U.S. interest rates won’t go up this year are easing pressure on assets in Turkey, whose reliance on capital inflows makes it is one of the emerging markets most exposed to higher U.S. borrowing costs.

The cease-fire report is “positive as tension may ease ahead of the early elections,” Piotr Matys, a currency strategist at Rabobank in London, said by e-mail. “But the main driving factor behind lira’s recovery against the U.S. dollar is fading market expectations that the Fed will be able to raise interest rates this year.”

The state-run Anadolu Agency said Wednesday that 141 Turkish soldiers have died since July 7 in the country’s largely Kurdish southeast, with more than 200 PKK militants and 39 civilians also killed.

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