Turkey’s lira firms nearly one percent, extending recovery

Turkey’s lira firmed nearly 1 percent on Monday, extending its recent rally after investor worries over the central bank’s independence and Ankara’s relations with Washington were partially eased.

The lira, which slumped in August and at one stage was down 47 percent since the start of the year - has recovered some of those steep losses.

The Central Bank’s 6.25 percentage point rate hike in September eased concerns over its independence and the release of US pastor Andrew Brunson from house arrest in Turkey two weeks ago signaled an improvement in ties with Washington.

“Today’s move is a continuation of this very impressive rally driven mainly by domestic factors,” said Piotr Matys, emerging market forex strategist at Rabobank.

“You have the three important factors in place: tight monetary policy, efforts to rebalance the economy and improvement in diplomatic relationship with the United States,” he said.

The lira firmed nearly 1 percent to 5.5440 against the dollar by 1345 GMT on Monday, from Friday’s close of 5.5975. It reached 5.5050 earlier in the day, its strongest in more than 2-1/2 months but still down nearly 30 percent this year.

Monday is a public holiday in Turkey and markets are closed.

The lira was battered this year by a sell-off sparked by concerns over the central bank’s ability to adequately respond the rise in inflation with President Tayyip Erdogan, a self-described “enemy” of interest rates, calling for cheaper cost of borrowing.

The sell-off steepened after a diplomatic row between Ankara and Washington over the trial of US pastor Brunson led the two NATO allies to impose sanctions and additional tariffs on one another.