Lira crisis may end with long rally

Turkey’s lira has had few rallies to speak of in 2018, but the momentum built up this month may signal a turning point.

The currency extended its advance yesterday to take gains over two weeks to nearly 10 per cent. While some technical indicators suggest the rally has become stretched, other gauges show the rebound in one of this year’s worst-performing emerging-market currencies has further to run.

The timing is auspicious for Turkey. The central bank, often accused of dragging its feet as the currency tumbled this year, meets on October 25 against a suddenly more favourable backdrop. The country posted its biggest monthly current-account surplus on record in August and last week took a key step toward patching its broken relations with the US as a court freed a jailed American pastor.

“It’s the typical bustand-boom pattern you’d expect during a currency crisis,” said Bernd Berg, strategist at Woodman Asset Management AG. “First, there is panic selling with the currency finding no ground and spiking under huge volatility. Once the central bank comes to the rescue, the currency starts to stabilise, volatility comes down and then you see a massive rally.”