Currencies: Turkish lira jumps after Erdogan wins in elections

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The Turkish lira jumped as currency markets opened Monday, in the wake of a victory for incumbent President Recep Tayyip Erdogan in Sunday’s presidential and parliamentary elections.

The lira TRYUSD, +1.7911%  rose by as much 3% against the U.S. dollar and TRYEUR, +1.9708%  euro as European trading hours began, to its strongest level in about two weeks. One dollar last bought 4.6043 lira, up 1.6% and one euro bought 5.3555, up 1.7%.

With all but 2% of Turkish ballots counted, Erdogan received 52.5% of the vote, enough to avoid a second runoff election. In addition, Erdogan’s party secured a majority in parliament.

But many analysts suggested that any relief rally for the currency would be short-lived, as investors will now turn to lingering long-term concerns about the Turkish currency.

“In the past, Turkish assets have responded positively to political events that were perceived as increasing political stability,” analysts at Goldman Sachs said in a note before the election.

“However, President Erdogan’s comments on monetary policy during the election campaign—advocating lower interest rates and indicating that he would play a more active role in monetary policy—have raised concerns over the future direction of monetary policy in the event of this outcome,” Goldman said.

Erdogan has described high interest rates as “the mother and father of all evils.” Investors have expressed concern that his preference for lower rates is preventing the country’s central bank from supporting the currency and soothing inflationary pressure.

In the last 10 years, the Turkish currency has lost nearly three quarters of its value against the dollar.

“The recent financial market turmoil means that a sharp slowdown is [in] the cards,” said Jason Tuvey, senior emerging markets economist at Capital Economics. “The risks stemming from the election are more likely to materialize over the longer term—in particular, the risk that an Erdogan-AKP government pursues much looser fiscal and monetary policy.”

A decline in oil prices may have contributed to the recovery of the lira on Monday. The country is a large importer of crude oil, which is denominated in dollars. Brent crude oil LCOQ8, -1.71%  prices fell 1.7% Monday to $74.05 per barrel, following a Russia-backed deal by the oil-exporting nations of OPEC to increase output.

Elsewhere in currency markets there were few large moves, with the ICE U.S. Dollar Index DXY, +0.20%  roughly flat from its level Friday. The dollar fell slightly against the Japanese yen USDJPY, -0.48%  , dropping 0.4% to ¥109.52.

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