Crypto Bells Ringing as Turkish Lira Drops on Speculation Crackdown while Argentina’s Peso Hits Record Low
Argentina’s peso plummeted to new lows as the concerns about high inflation returns. The peso that has lost 14 percent since the beginning of the year, is one of the world’s worst-performing currencies in 2019. This weakness has raised the fear of a 2018 repeat when investors dumped the currency.
Amidst the negative day for most emerging-market currencies, peso extended its seven-day slide reaching a record low of 42.72 per dollar, weakening every day.
Turkey Crackdowns On Lira Speculation
On Wednesday, after Turkey orchestrated a currency crunch in order to prevent the lira from sliding even more before a key election on Sunday, investors dumped Turkish bonds and stocks.
Turkish stocks plummeted where the nation's benchmark index, the USE National 100 Index fell 5.2 percent while iShares MSCI Turkey ETF (TUR) that tracks Turkish equities in the US dropped 7.7 percent.
This came as the government directed the banks to withhold lira liquidity from the offshore market which sent the Turkish swap rate to 1,200 percent, the highest rate ever. The cost of borrowing lira shot up overnight as local banks are under pressure to not provide liquidity to the fund managers who want to bet against lira and short it.
Now, in order to close the trades, investors who want out of their lira positions were forced to sell other Turkish assets to get the cash.
The authorities have engineered a situation where investors can’t move out lira easily, averting the currency slide before the elections on March 31st that will determine who governs the cities of Turkey.
This is good for Recep Tayyip Erdoğan, the current President of Turkey who is already contending with soaring inflation and recession.
The main stocks of Turkey fell 5.7 percent, erasing its 2019 gains. The yield on two-year bonds jumped 20.45 percent while the cost of insuring Turkish debt against default also climbed.
Lira weakened 1.4 percent to 5.4035 per dollar which has the Turks bearish on their currency and holding their savings, more than before in dollars and euros. Recently, Bloomberg reported that the locals now hold a record, about $176 billion of foreign currency.
Turkish officials confirmed that foreigners are struggling to get out of lira positions with one senior official saying the measures are backed by the government and aren’t permanent.
Lira, that has been a favorite among currency traders since the central bank raised interest rates to 24 percent last September, is now being opted out of. With Erdogan warning that banks deemed responsible for speculating against Lira would be punished, the hedge funds are exiting the country.
As a result of this liquidity crunch as Turkish banks aren’t willing to provide cash to these hedge funds, the cost of borrowing lira surged over 40-fold over the last three days, the highest since Turkeys 2001 financial crisis.
Bloomberg reported some analyst saying that as
“lira becomes a very difficult currency to trade, investors may be less inclined to invest in Turkey in the future.”