Lira hits four-month high, outpacing EM peers

The Turkish lira continued its winning run against peers on Thursday, firming to its strongest level since early April thanks to a thawing of Turkey-US relations and a months-long trend of policy easing among major central banks. The lira stood at 5.4835 as of 1223 GMT, strengthening from Wednesday's close of 5.4955. It has risen seven of the last 10 trading days and is up more than 11% from early May, which marked its weakest level this year.
The currency has emerged as by far the strongest among emerging markets so far this quarter, and has clawed back the losses from a volatile selloff that began in March a week before nationwide local elections. The lira has risen as the US Federal Reserve has prepared in recent months to cut interest rates, depressing the dollar. It remains down 3.5% this year after shedding some 30% in last year's currency crisis that tipped the economy into recession.
The Fed cut rates a notch last week and more US accommodation is expected, which could give the lira more room to run. A fall in inflation in recent months and a dramatic drop in Turkey's current account deficit compared to last year have also driven lira gains against the dollar. A record rise over the last year in Turks' foreign currency holdings has loomed as a key concern for investors, though, in another possible reprieve, those levels have edged down in recent weeks, according to central bank data.
The lira's 5.5% gain so far this quarter is the best among 29 emerging markets and nearly double that of the second-best Ukrainian hryvnia. It has risen despite Ankara abruptly sacking Turkey's central bank governor last month and risking US sanctions over buying Russian missiles, silencing for now critics who had warned such moves could cause another crisis. US President Donald Trump has resisted efforts in Washington to sanction Turkey over the S-400 defences.
On Wednesday, Turkey and the United States agreed to establish a joint operation centre in Turkey to coordinate and manage a planned safe zone in northeast Syria, a settlement seen to ease friction in ties between two NATO allies. The main BIST 100 stock index was trading flat while the banking index trading some 1% higher at 1227 GMT. Government bonds also edged higher.