Turkish lira looks more vulnerable on worsening U.S. ties – report

The Turkish lira is looking more vulnerable again as investors steel themselves for a further deterioration in relations with the United States.

Turkey’s reliance on portfolio inflows to finance its widening current account deficit is being highlighted by political tensions between the government of President Recep Tayyip Erdogan and the world’s most powerful nation, according to a report published by Bloomberg on Wednesday.

The share of the $44-billion deficit that is being financed through foreign buying of Turkish bonds and stocks has grown to its biggest in nearly three years, Bloomberg said, citing central bank data and its own calculations.

Underlying financing has shown no sign of improvement, according to Manik Narain, a strategist at UBS Group.

Narain sees the lira weakening to 4.5 per dollar by the year-end, Bloomberg said. It fell 0.5 percent to 3.82 to the dollar in morning trade on Wednesday.

On the plus side, the lira offers the highest volatility-adjusted yield among major emerging-market economies, and the central bank is set to protect that position by keeping interest rates on hold on Thursday, Bloomberg’s Constantine Courcoulas wrote.