TRY slump continues in light of strong US data

Thursday saw the Turkish lira (TRY) decline further despite the Turkish central bank's surprise move from Tuesday night to more than double the weekly repo rate to 10 percent (although effectively this was more like a 7 to 10% hike considering that the CB had previously not lent money at the official rate of 4.5%). The decision was all the more bold given Recep Tayyip Erdogan's clear opposition to higher interest rates.

At first, the TRY quickly rebounded from its all-time low against the USD of more than TL2.39 to roughly TL2.16. However, that has only been a temporary breather with hedge funds well aware of Turkey's economic and political challenges as well as the central bank running out of foreign currency reserves. On Thursday, the situation turned worse again following both strong economic data releases from the US and disappointing news from Turkey where it has been reported that the government again removed more than 800 police officials and 90 prosecutors from their positions. The political struggle is far from over, causing further USDTRY volatility.

Other EM currencies faced similar challenges. For instance, the decision in South Africa to carefully raise rates on Wednesday, although a surprise, was not as bold as the rate increase in Turkey and was very short-lived, too. The Rand is among the biggest EM currency losers and currently trades at ZAR 11.21 per USD. Emerging market woes were additionally fuelled by the Federal Reserve's clear stance to continue to reduce its monthly asset purchases. In Ben Bernanke's last speech as Fed chairman, he did not mention the emerging markets with one word, hinting at the US just not caring about the problems of the weaker countries.