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EMERGING MARKETS-Turkish lira plumbs new lows, EMEA FX weakens

Reuters | Ankara | Updated: 27-10-2020 15:15 IST | Created: 27-10-2020 15:06 IST
EMERGING MARKETS-Turkish lira plumbs new lows, EMEA FX weakens

Turkey's lira hit a record low on Tuesday and most other emerging market currencies in Europe, Middle East, and Africa fell as a rise in coronavirus infections and little progress in U.S. stimulus talks dampened demand for risk-linked assets. Strains in Turkey's ties with the United States, a row with France, a dispute with Greece over maritime rights, and middling monetary policy support from the central bank have weighed on the lira, making it one of the worst-performing EMEA currencies this year.

The lira sank 1% to a new low of more than 8.1 to the dollar and has shed more than 36% in value this year. "It would have been difficult for the Central Bank of Turkey to admit more clearly that it is not willing to take any measures to stabilize the inflation outlook and the lira against political pressure," Esther Reichelt, FX & EM analyst at Commerzbank, wrote in a note.

"Increased geopolitical tensions and the threat of U.S. sanctions are exacerbating the lira-negative sentiment further." Turkish stocks were flat, while MSCI's index of emerging market stocks moved along a similar line.

The sentiment was dampened by Wall Street marking its worst day in a month while rising coronavirus cases in the United States and Europe bought about new curbs on economic activity. Markets were also awaiting the outcome of the U.S. presidential election next week.

Russia's rouble dropped 0.3%, while stocks fell up to 1%. Analysts at Societe Generale posited that recent pressure on the rouble also came from markets pricing in a possible Democrat win in the U.S. election. "The conventional wisdom is that under Joe Biden, the U.S. administration is likely to mend relationships with traditional allies and be harder on Russia than the Republicans," Societe Generale analysts wrote.

Russian authorities ordered people across the country to wear facemasks in some public places and asked regional authorities to consider shutting bars and restaurants overnight after a surge in coronavirus cases. Central European currencies fell to the euro, while stocks in the region rose slightly. A spike in local coronavirus cases has also weighed on stocks and currencies recently.


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