ISTANBUL: Turkey's lira rose to its highest in three weeks on Thursday, touching a level last seen before voters went to the polls on June 7, as investors bet the AK Party was moving closer to forming a coalition government.
The lira was hammered after the AKP lost its single-party government, raising concerns about political gridlock and the possibility of a snap election.
But investors are increasingly betting the party will be able to form a coalition government, some thinking it could pick the main opposition People's Republican Party (CHP) in a move that would be favourably viewed by the business elite.
"With the chances of a coalition rising, there is a general positive mood on the dollar/lira front," said Pinar Uslu, strategist at ING's Turkey unit. "But it's hard to go beyond 2.66 unless there are new developments to ease the uncertainty."
The lira was at 2.6606 to the dollar at 1205 GMT, after earlier hitting 2.6550, its strongest since June 5. A poll from a major polling company on Wednesday showed that Turks would be unlikely to change their vote in any snap election soon, bolstering some expectations that a coalition would be the eventual outcome.
The benchmark 10-year government bond yield was trading at 9.35 percent, after Wednesday's close at 9.45 percent.
The main Istanbul share index declined 0.65 percent to 83,588.54, compared with a 0.3 percent fall in the MSCI's emerging equity index.
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