Turkish lira sinks to record low

Market disquiet over political interference plunged Turkey's lira to a record low against the dollar in the wake of the central bank's inability to stave off turbulence in the currency.

The lira fell 1.3 per cent, declining to a new bottom of TL2.7344 per dollar and taking its fall since the start of the year to 15 per cent. It later recovered to TL2.72.

Erdem Basci, the governor of Turkey's central bank who has been under continuous pressure from president Recep Tayyip Erdogan, chose on Tuesday to leave its three main interest rates untouched.

Economists have been expecting a rate rise to support the lira but, with Turkey heading to the polls next month, the president has been calling for rates to go in the other direction.

Piotr Matys, Rabobank's emerging markets FX strategist, said the governor's measures had failed and the trend in the declining lira had resumed.

On the prospect of the governor raising rates, Mr Matys said that "he will be very reluctant to do so" because of political pressure.

The dollar ended the week feeling the effects of another poor set of data, this time underwhelming durable goods orders.

But all week the currencies market has been closely monitoring the progress of talks over Greece's debt problems and the euro's recent good run against the dollar was pulled back as the language from the talks became increasingly rancorous.

Since April 13, when the euro was edging towards $1.05, the single currency has been gaining some traction and during Friday's trading was just about to hit $1.09 before retreating to $1.0822.

Making the most of the complications befalling its main currency peers was sterling, which hit a seven-week high against the dollar in defiance of the prevailing negative tone of several bank strategists.

They have been forecasting a turbulent period for the British pound as the UK heads towards the May 7 election and the prospect of a hung parliament.

But sterling, which this week benefited from hawkish commentary from the Bank of England, has shown surprising resilience.

On Friday, it rose more than half a per cent against the dollar, reaching $1.5172. The pound continued to trade close to €1.40 and firmed up against all of its trading partners.

Goldman Sachs, which this week cast aspersions at some of Labour's policies, said political uncertainty had not in past election cycles been decisive for sterling.

"We ultimately think that the GBP will be driven by the solid fundamentals of the UK economy," said Goldman's FX strategists.

The bank forecast sterling would strengthen against the euro and depreciate modestly against the dollar over the next 12 months.

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