Turkish lira hits record dollar low

Turkey's lira hit a record low against the dollar on Wednesday after news of higher unemployment and a wider budget deficit added to concern about the economic outlook ahead of June parliamentary elections.

The currency weakened by 0.7 per cent, with as many as TL2.705 required to buy a single dollar. It was the first time in its history that the lira has crossed the TL2.70 mark against the world's reserve currency.

The move added to the lira's position as the worst-performing emerging market currency of 2015. Over the year, it has weakened by almost 16 per cent against the dollar.

Unemployment in the December to February quarter rose to 11.3 per cent from 10.3 per cent in the same period a year ago. Official data also showed a budget deficit in March of TL6.8bn ($2.51bn).

"We expect that selling pressure on the lira is going to intensify," said Bernd Berg at Societe Generale.

"The election uncertainty might trigger capital outflows especially in an environment of broad dollar strength."

Enrique Diaz-Alvarez, chief risk officer at Ebury, said: "We think the lira is one of the most vulnerable emerging market currencies.

"It faces political pressure from the AKP government to slash rates in spite of rising inflation. Turkey's currency is particularly vulnerable to reversals in investor appetite for emerging market risk, since it is dependent on fickle portfolio flows - as opposed to more stable funds from foreign direct investment or remittances - to finance its current account deficit and the rollovers of its banks' significant foreign debt."

The June 7 poll, which has the potential to determine Turkey's political course for some years, comes at a time when President Recep Tayyip Erdogan has been centralising power and striking an increasingly confrontational tone on relations with the west.

It is expected that the ruling AKP party will retain control of parliament but will fall short of the number of seats required to change the constitution that would enable Mr Erdogan to fulfil his stated aim of an executive presidency and remove "all obstructions" to governing the country.

Istanbul's main equities index, the Borsa Istanbul 100, fell 0.6 per cent to 81,826.14.

The general trend for a stronger dollar continued on global markets, with the dollar index up 0.5 per cent at 99.207.

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