Turkish Lira, Investor Sentiment, and Economic Conditions

The Turkish lira fell on April 12 as investor concerns grew regarding the deteriorating economic conditions in the country. Meanwhile, stocks in emerging markets recorded their worst drop in nearly three weeks as the corporate earnings season loomed.

The Turkish currency weakened about 0.7% leading losses across Europe, the Middle East, and Africa (EMEA). The country’s current account deficit in February surpassed expectations and the employment rate also rose. Both factors affected the Turkish lira.

Inflation expectations for Turkey jumped in recent weeks due to doubts regarding the central bank’s position. The country’s central bank is likely to make a decision on interest rates later this week. The Turkish currency is trading consistently lower after the ouster of four central bank heads in two years created doubts over its credibility.

Other emerging market currencies also suffered losses as the focus turned to the U.S. inflation data due on April 12. Last week emerging market currencies recorded small gains due to weakness in the dollar and Treasury yields. Investors feared that a bigger-than-expected spike in inflation could trigger another rally in the greenback.

Lira and other emerging market currencies

In EMEA, South Africa’s rand fell 0.4%, and Russia’s ruble was down 0.5% Central European currencies also declined to the dollar and the euro, after making strong gains last week. Most emerging market currencies are trading lower in 2021 amid growing bets that the U.S. economic growth will ramp up quickly and cause policy tightening by the Federal Reserve. Inflation is one of the most important factors, so it is desirable to monitor this factor.

The MSCI’s index of emerging market stocks dropped 1.2% on Monday ahead of the first-quarter earnings season. The information released by companies is expected to shed light on whether corporations have been able to recover from the pandemic.

U.S. dollar, euro and yen

The U.S. dollar strengthened its position on Monday after last week’s decline as traders assessed the outlook for the Treasury yields. They are waiting for the U.S. inflation and retail sales data.

On Monday, the euro dipped back below $1.19 while the British pound briefly fell to a two-month low. Against the British currency, the dollar initially gained before reversing the course. The pound was last up 0.2% at $1.3734.

The dollar index gained 0.1% to 92.275 while the euro fell 0.2% to $1.1875.

The greenback fell 0.2% to 109.41 against the Japanese currency.