Turkey’s beleaguered currency breached 6.24 against the dollar in Thursday trade, its lowest level in eight months amid deep market uncertainty worsened by the recent announcement of new elections for the city of Istanbul.
Credit default swaps, or the cost of insuring exposure to Turkish debt, spiked 11 basis points (bps) in one day to reach 483 bps, similar to levels seen ahead of Turkey’s local elections in late March, Reuters reported, citing IHS Markit. Dollar bonds for the country of 80 million fell across the curve.
The lira was trading at 6.225 to the dollar at around 1:00 p.m. Istanbul time. It trimmed some losses after the central bank announced it was suspending one-week repo auctions — which essentially inject cash into banking system — in a bid to shore up the currency. Analysts have attributed some of the pressure to concerns over U.S.-China trade talks, but the lira has now been on a downward spiral for more than a year.
The currency, which has been ranked the worst-performing in emerging markets for several consecutive weeks, was trading at 5.9642 to the greenback at the close of last week. Last year saw the lira lose as much as 40% of its value against the dollar as Turkey fell into recession. For perspective, one dollar bought just 3.5 lira in mid-2017.
