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Relief in Emerging Market FX After Turkey Raises Interest Rates

There was widespread relief among emerging market investors on Thursday after the Turkish central bank finally raised interest rates to protect the embattled lira. Elsewhere, the dollar lost value for a fourth consecutive day and ethereum stabilized after a ten-day fall.

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Risk appetite returned on Thursday, helped by the Turkish central bank which finally raised interest rates to protect its beleaguered currency, the lira.

The lira had, prior to this afternoon’s rate rise, lost more than 40 percent of its value this year and was among the biggest causes for financial market concern, especially given the significant exposures of European banks to Turkish borrowers.

USD to TRY - 1 Week chart - Latest
USD/TRY - 1 Week Chart - Latest

The lira strengthened by 7 percent to 6.08 per US dollar after the central bank raised interest rates to 24 percent, from 17.75 percent. The central bank’s independence was widely questioned in July when it refrained from hiking rates despite a 100-basis-point increase being fully priced in. At the time, political interference from President Erdoğan—a long-time critic of high interest rates—was suspected.

In the emerging market space, doing particularly well at present is the South African rand, which gained on Thursday for a sixth consecutive day. The rand was last seen trading at 14.75 to the dollar.

Developments in Turkey also helped the Indian rupee clamber away from this week’s all-time lows; the dollar now buys 71.5 rupees.

The US dollar as a whole lost ground for a fourth consecutive day, as measured by the US Dollar Index. The world’s reserve currency wasn’t helped by lower-than-expected CPI growth for August. Economists were confident after US wage growth struck a nine-year high on Friday and had predicted CPI growth of 0.3 percent; instead, they had to settle for a print of 0.2 percent, matching July’s figure.

With risk appetite returning, like the dollar, the yen also lost ground across the board.

AUD to USD - 1 Week chart - Latest
AUD/USD - 1 Week Chart - Latest

A robust Australian jobs report helped the Australian dollar appreciate above 72 US cents for the first time this week.

The central banks of Europe and the UK also met but there was nothing offered at either meeting that traders didn’t already know; the euro and pound, therefore, matched movements elsewhere, meaning higher prices against the dollar and yen and a mixed bag elsewhere.

Unlike bitcoin, which has shown resilience in recent days, ethereum, the world’s second largest cryptocurrency, has had a torrid time. On Thursday, ethereum managed to break its ten-day losing spell as it climbed back above $200 ($209.68) from Wednesday’s fourteen-month low of $167.



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