Tuesday, August 21, 2007

Turkish Lira Leads Eastern Europe's Currencies Lower on Risk

From Bloomberg today:

Turkish Lira Leads Eastern Europe's Currencies Lower on Risk

By Yon Pulkrabek

Aug. 21 (Bloomberg) -- Central and eastern Europe's currencies dropped as further evidence the U.S. subprime crisis is spreading deterred investors from riskier assets.

The Turkish lira led Poland's zloty and Hungary's forint lower against the dollar and euro as the NTX Index of stocks in the region's 30 biggest companies fell, alongside bourses in Istanbul, Warsaw and Budapest. The currencies rebounded Aug. 17 after the Federal Reserve cut the rate at which it lends directly to banks.

``What the Fed did on Friday is not going to alleviate the situation,'' said Nigel Rendell, an emerging-market currency strategist in London at Calyon, the investment banking arm of Credit Agricole SA. ``People are reassessing their positions.''

Turkey's lira snapped two days of gains against the dollar, falling to 1.3613 by 5:26 p.m. in Istanbul, from 1.3507 yesterday.

Turkish government bonds declined along with the currency, with ABN Amro NV's yield index rising for the first day in three. Yields move inversely to bond prices. JPMorgan Securities Inc. said it sold Turkish bonds and lowered its recommendation on the debt, according to a note to clients.

The Fed unexpectedly cut its so-called discount rate by half a percentage point to 5.75 percent to calm fears the credit turmoil is infecting the wider economy.

Against the euro, the zloty dropped to a more than two-month low and recently traded at 3.8508, from 3.8359 yesterday. The forint slid to 261.45 per euro from 259.04.

The Romanian leu dropped to 3.2843 against the single European currency, touching a two-month low, from 3.2566 Aug. 20.

The Czech koruna fell to 27.648 versus the euro, from 27.562. Lawmakers today approved a plan to restructure the tax system and cut spending to rein in the budget deficit.

In the region's bond market, the yield on the 6 percent Hungarian note due October 2011 rose 6 basis points to 7.23 percent, while the yield on Poland's 4.25 percent security due May 2011 rose 5 basis points to 5.67 percent.

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