Turkish Lira Advances From Five Month Low

In Bloomberg today:

Turkish Lira Advances as Fed's Rate Cut Encourages Carry Trade

The Turkish lira rose for a second day against the dollar after the Federal Reserve's decision to cut its discount rate prompted investors to return to the so- called carry trade.

The lira rebounded from a five-month low as investors, attracted by the highest interest rates in Europe, bought the currency in trades funded by borrowing the Japanese yen or Swiss franc more cheaply. Turkey's currency was also buoyed as traders returned to the country's government debt, according to an ABN Amro NV index of bond yields.

``It's down to the Fed,'' said Agata Urbanska, European emerging market economist at ING Bank NV in London. ``There should be some relief'' for the lira.

Against the dollar, the lira rose to 1.3507 by 5:45 p.m. in Istanbul, from 1.3667 on Aug. 17, when it touched the lowest since March 14. The Turkish currency also rose for a second day versus the euro, to 1.8226 from 1.8440 at the end of last week.

The Fed unexpectedly lowered the rate at which it lends directly to banks by 50 basis points to 5.75 percent on Aug. 17, and said it's ready to do more to ``mitigate'' the effects of the credit-market turmoil on the wider economy.

Turkish government debt advanced for a second day, with ABN Amro's index of bond yields dropping from near a three-month high. Yields move inversely to bond prices.

The lira fell more than 5 percent against the U.S. currency last week, the most in more than a year, as a rout in global credit markets sparked a sell-off in equities and riskier assets such as emerging-market bonds and carry trades.

With a main lending rate of 17.5 percent, the lira is an attractive purchase for investors seeking higher-yielding assets.

Presidential Elections

Turkish Foreign Minister Abdullah Gul, a devout Muslim, failed to secure parliament's support to be elected the country's next president today, and another round of voting will take place on Aug. 24. A clash between the army -- traditionally the guardian of secularism in Turkey -- and the government over Gul's candidacy led to early elections on July 22.

In other markets, the Slovak koruna fell to 33.712 per euro from 33.676 on Aug. 17, while Poland's zloty dropped to 3.8384 from 3.8298 versus the single European currency. The Hungarian forint dropped to 258.85 per euro from 257.76 on Aug. 17.

The Czech koruna gained to 27.649 versus the euro, from 27.755 on Friday, with Romania's leu advancing to 3.2563, from 3.2622 per euro.

The NTX Index of stocks in the 30 biggest companies in central and eastern Europe rose more than 1 percent today, rebounding from near the lowest since March.

The yield on the 4.25 percent Polish bond due May 2011 rose 4 basis points to 5.62 percent, while the yield on the 4.6 percent Czech bond due August 2018 rose 4 basis points to 4.51 percent.