A money changer counts Turkish lira notes at a currency exchange office in Istanbul on August 8, 2018.
Yasin Akgul | AFP | Getty Images
The Turkish lira plummeted to a record low against the dollar after President Tayyip Erdogan surprised investors over the weekend by replacing the falconer governor of the central bank with a critic of high interest rates.
The yen rose against the euro and antipodean currencies according to speculation that Japanese investors who have recently bought the lira for its high rates will be forced to reduce losses and close their positions.
Concern that events in Turkey will cause disruptions in other financial markets also supported the dollar because of its security currency status.
“Other emerging market countries are not in the same position as Turkey, but there may still be some contagion,” said Masafumi Yamamoto, Mizuho Securities ’foreign exchange strategist in Tokyo.
“There is concern for people to start making profits in other markets. It looks like it’s time to rethink your investment strategy, as the rotation towards higher-yielding emerging currencies will be put on hold.”
The Turkish lira stood at $ 8.10 per cent in early Asian trading, 11% less than on Friday’s close.
At one point, the lira fell to 14.9% to 8.4850, approaching the record low of 8.5800.
Liquidity was scarce during early trading, but analysts said they are prepared for larger moves as more investors enter markets later.
The yen rose against the euro, the Australian dollar and the New Zealand dollar, driven by expectations that Japanese retail investors who lost money with the lira would conduct other popular cross-yen operations.
The dollar traded slightly at 108.89 yen, but rose against the British pound to $ 1.3833.
The euro fell slightly to $ 1,1885.
Erdogan fired the central bank governor just two days after a sharp rate hike aimed at undoing inflation by almost 16% and supporting the lira.
According to analysts, the new central bank governor will be an investment in the orthodox and falcal measures taken to combat inflation, which could lead to prolonged market volatility.
“After regaining investor confidence with a series of aggressive rate hikes, Turkey has snatched defeat from the hands of victory,” analysts Brown, Brothers and Harriman wrote in memory.
The decline in risk appetite weighed on the Australian dollar, which fell to $ 0.7725. The New Zealand dollar also fell slightly to $ 0.7153.
Other falls in Australia and the kiwi are likely to be limited because both currencies will still benefit from rising commodity prices and an acceleration in world trade, Mizuho’s Yamamoto said.