Fed Distracts Attention From Turkish Election Risk as Lira Jumps

  • Turkish currency strengthens to highest since August
  • Latest polls show another hung parliament possible in November

Turkey’s lira surged to a two-month high as waning bets for an imminent Federal Reserve interest-rate increase reduced pressure on the currency before elections next month.

The lira climbed as much as 1.2 percent to 2.8783 per dollar, the strongest since Aug. 17 and one of the top five performers among developing-nation peers. The currency traded 0.9 percent higher at 5:54 p.m. in Istanbul. Yields on two-year government notes fell to a two-month low.

Odds that the Fed will increase borrowing costs by the end of this year fell to a record after a slew of disappointing economic data. Assets in Turkey, whose reliance on capital inflows leaves it exposed to higher U.S. rates, have been battered amid escalating security risks and a political deadlock that followed inconclusive parliamentary elections in June.

The rally will go on “as long as data continues to support a delay in U.S. hike and further monetary stimulus from other central banks,” Erkin Isik, a strategist at Turk Ekonomi Bankasi AS in Istanbul, said by e-mail.

While it’s up almost 5 percent in October, the currency remains an underperformer among 24 developing-nation peers after sliding 19 percent in 2015, the most after Brazil’s real. To reverse that will require the country to form a coalition government following a Nov. 1 parliamentary vote, Isik said.

The ruling Justice and Development Party, or AK Party, lost its majority in June for the first time since 2002 and parties failed to find enough common ground to create a coalition. Polls show another hung parliament may follow next month’s ballot.

Yields on two-year government debt fell 21 basis points to 10.44 percent, the lowest since Aug. 17. The Borsa Istanbul 100 Index of fell 0.2 percent after jumping as much as 1.3 percent cross 80,000 for the first time since July.

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