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Turkish lira collapses on central bank problems, yen profits | Mighty 790 KFGO




By Stanley White

TOKYO (Reuters) – The Turkish lira fell to a record low against the dollar after President Tayyip Erdogan stunned investors over the weekend by replacing the central bank governor with a critique of high interest rates.

The yen rose against the euro and antipodean currencies on speculation that Japanese individual investors who have recently bought freedom for its high rates will be forced to cut losses and close their positions.

Concerns that events in Turkey will cause disruptions in other financial markets also backed the dollar because of its status as a safe-haven currency.

“Other emerging market countries are not in the same position as Turkey, but there could still be some infection,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“There are concerns that people will start making profits in other markets. This seems like a time to rethink your investment strategy, because the rotation in emerging market currencies with higher yields will be kept on hold.”

The Turkish lira stood at 8.10 per dollar in early Asian trade, down 11% from its close on Friday.

At one point the lira fell 14.9% to 8.4850, which is close to a minimum of 8.5800.

Liquidity was weak during early trading, but analysts said they are prepared for bigger moves as more investors enter the markets later in the day.

The yen rose alongside the euro, the Australian dollar and the New Zealand dollar, fueled by expectations that Japanese retail investors who lost cheap money would settle other popular trades among the yen.

The dollar changed slightly to 108.89 yen, but rose against the British pound to $ 1.3833.

The euro fell slightly to $ 1.1885.

Erdogan fired the central bank governor just two days after a rapid rate hike aimed at halting inflation by nearly 16% and supporting the lira.

The new central bank governor is likely to mean a reversal of the falconry and orthodox steps taken to fight inflation, which could lead to prolonged market volatility, analysts said.

“After regaining investor confidence with a series of aggressive rate hikes, Turkey has snatched the loss from the jaws of victory,” analysts at Brown, Brothers and Harriman wrote in the memo.

A drop in risk appetite weighed on the Australian dollar, which fell to $ 0.7725. The New Zealand dollar also fell slightly to $ 0.7153.

Further declines in the Aussie and kiwi are likely to be limited because both currencies will still benefit from rising commodity prices and an acceleration in global trade, Mizuho’s Yamamoto said.

(Reporting by Stanley White; Editing by Lincoln Feast.)

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