ISTANBUL: Turkey's lira weakened on Thursday after the U.S. Federal Reserve cut interest rates by a quarter percentage point but also signalled that a long easing cycle was unlikely, which could check a recent rally in emerging market currencies.
Despite a larger-than-expected rate cut from the Turkish central bank last week, the lira was propped up by expectations that the Fed would begin a series of rate cuts this week, as well as a more dovish European Central Bank.
However on Thursday at 0636 GMT, the lira stood at 5.5900 against the dollar. It closed at 5.5850 on Wednesday, after weakening as far as 5.6220 following the Fed rate decision.
The Fed cut its target interest rate to 2.00-2.25%, a move widely expected by financial markets. However, many traders had expected clearer confirmation of forthcoming rate cuts.
Orkun Godek, strategist at Deniz Investment, said the signals from Fed officials ahead of its meeting in September, as well as other external factors would be the main influences on Turkey's currency.
"The lira has been on a positive trajectory recently and this stems from optimism in international markets, inflation falling even if due to the base effect and decline in the country's risk premium," he said, adding that investors are also looking forward to July inflation data.
Separately, Turkey's central bank cut its inflation forecasts on Wednesday and new governor Murat Uysal said it has "considerable" room for manoeuvre on interest rates in coming months, a week after it began an expected policy easing cycle with a big cut.
Until Wednesday, the lira had strengthened five straight trading days.
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