25 June 2018 ( Lagos) : All eyes are on the Turkish Lira this morning with the currency rallying sharply in early trade today, following the news that Turkish President Recep Tayyip Erdogan has won the weekend election in Turkey. The Lira had advanced as much as 3% at time of writing with the currency currently standing as the only emerging market to be trading higher against the USD. The improved sentiment in the Lira is likely linked to confirmation of continued political leadership in Turkey.
There will be some underlying concerns over whether this buying momentum for the Lira could actually last, especially when you consider that fears over the repercussions of an Erdogan victory had been one of the primary drivers behind the collapse in the Turkish Lira over the first half of 2018. There is every possibility that the rally in the Lira could be temporary.
The currency has weakened beyond 20% during the first half of 2018, with one of the main contributors behind the Lira weakness being that Erdogan had promised to become an influence in economic matters and central bank policy if he won the election.
Whether the Lira can actually maintain its strength over the next couple of days will be somewhat reliant on how international investors react to the news that Erdogan will have an extended rule of power in Turkey. Investor confidence in Turkey has suffered in the aftermath of fears that central bank independence would be at heavy threat in the event of an Erdogan victory, and it will take some serious convincing for investors to move back into Turkish assets.
The possibility that the impressive rally this morning in the Lira could just be temporary shouldn’t be ruled out. One would expect for investors to closely monitor the developments in Turkey over the upcoming period. If there is an air of calm within Turkey it would be seen as a positive for the Lira, however any reports that the central bank will be instructed to significantly lower interest rates would be seen as a major threat for the currency.
Source: Jameel Ahmad, Global Head of Currency Strategy & Market Research at FXTM and Lukman Otunuga , Research Analyst at FXTM
Reporting for EasyKobo on Monday, 25 June 2018 in Lagos, Nigeria
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