Investors nervous over Turkey

Currency crash hammers emerging markets around the globe

THE EURO SLID to a fresh 13-month low and emerging market currencies slumped further yesterday, while the yen surged to a six-week high as the fallout from the Turkish lira’s crash pushed more investors into safe-haven currencies.

As investors dumped riskier assets, emerging market forex continued to reel as investors worried about contagion.

South Africa’s rand was down 2.7 percent after falling more than 10 percent in earlier trading, Mexico’s peso was 1.9 percent lower, and the Russian rouble a more modest 0.3 percent.

Turkey’s lira bounced off record lows after the central bank pledged to provide liquidity and cut lira and foreign currency reserve requirements for Turkish banks. Finance Minister Berat Albayrak also said that the government had drafted an economic action plan to ease investor concerns.

“The big fear in the market is that we are headed for a full-blown emerging market crisis,” said Ulrich Leuchtmann, foreign exchange strategist at Commerzbank in Frankfurt, citing the 1997 Asian financial crisis when even countries with a sound macroeconomic position were sucked into a deep selloff. Leuchtmann said he believed that the market was “fundamentally in a different position” today, because many emerging market central banks retained the confidence of investors after hiking interest rates over the past year.

Fears But a scramble into currencies deemed safer, such as the yen, underlined fears about where this was headed.

The euro fell to as low as $1.1365, a 13-month low, before recovering to trade down 0.3 percent to $1.1377.

Analysts said most of the euro weakness was down to dollar strength, but worries about the impact on European banks of the Turkish slump, despite the relatively limited exposure of most big lenders, had also played a role.

The dollar, which has rallied since the lira crisis exploded, gained 0.1 percent to 96.463 against a basket of major currencies.

The Swiss franc jumped to 1.1288 to the euro, within a whisker of a one-year high against the currency, but was little changed against the dollar. The franc is typically bought by investors in times of market flux.

The yen surged half a percent against the dollar to 110.42, after earlier hitting a six-week high of 110.11.

The euro slipped 0.8 percent against the yen to 125.52, close to a 2½-month low of 125.26. The most striking moves were in emerging markets as the Turkey slide rippled outwards.

The lira found some support after sinking to a record low below 7 lira per dollar. The currency last traded at 6.8364 against the dollar. – Reuters