Turkish lira at a record low, yuan at 8-year low
LONDON: The Turkish lira fell to a new record low yesterday and the Chinese yuan hit an eight-year low, although emerging market stocks rose for a second day, helped by a continued pull back in US Treasury bond yields. Emerging currencies have been under pressure in the face of dollar strength, but domestic woes have accentuated the losses in some markets, with the lira tumbling 0.7 percent to a record low on signs of more discord between Turkey and Europe.
President Tayyip Erdogan has accused Belgium of being a centre for supporters of the outlawed Kurdistan Workers Party (PKK) and the cleric who Ankara says orchestrated a failed July coup. He has also accused Germany of not being committed to the fight against terrorism. Roxana Hulea, a strategist at Societe Generale, said the lira was likely to remain under pressure. “We do consider Turkey as being one of the least protected during this renewed pressure on EM,” she said. The Chinese yuan also hit an eight-year low as the central bank set a weaker daily guidance rate.
Commerzbank noted that after the yuan’s inclusion in the special drawing rights basket of currencies in October, the yuan had depreciated by more than 3 percent, triggering concerns over a possible collapse. “It is hardly the case, in our view. On one hand, (the yuan) index is generally stable since August, suggesting (its) weakness reflects a broad US dollar strength.” But the bank’s analysts also noted China’s foreign reserves had dropped for four consecutive months since mid-2016, indicating that the central bank was still actively intervening in the market. The yuan has depreciated 5.4 percent against the dollar so far this year.
The Mexican peso, which has been pummeled hardest by Republican Donald Trump’s shock US election win last week, slipped 0.3 percent from a six-day high, after gaining 2 percent on Tuesday. Analysts expect the volatility to continue until there is more clarity on Trump’s policies. “It is a market consensus that the peso is undervalued, but because it is at the eye of the storm it is very difficult to advocate bottom fishing at this point,” said Hulea. The Russian rouble also weakened against the dollar, down 1.9 percent, as investors eyed developments in the government following the dismissal of the economy minister over allegations of corruption.