Bloomberg News

Lira Sinks Most in Two Weeks as Goldman Sees Pressure

October 17, 2011

(Updates with comment from Commerzbank analyst in fifth paragraph.)

Oct. 17 (Bloomberg) -- The lira sank the most in two weeks and was the worst emerging-market performer against the dollar after Goldman Sachs Group Inc. said the currency remains under “fundamental” pressure and may drop to 1.95 in three months.

The lira is “unlikely to outperform its emerging-market peers, even in a ‘risk-on’ environment and notwithstanding the central bank’s relatively more ‘hawkish’ stance on the exchange rate,” Goldman economist for the region Ahmet Akarli said in an e-mailed report today from London.

The currency weakened 1.4 percent to 1.8540 per dollar at 3:58 p.m. in Istanbul, the biggest drop among 25 emerging-market currencies tracked by Bloomberg, in its biggest decline since Oct. 3.

Turkey’s central bank has sold dollars in auctions since Aug. 5 in an effort to stem the currency’s declines, selling a record $750 million on Oct. 5 after the lira reached a record- low 1.9096 per dollar the previous day. It has reduced the amount and frequency of the sales, selling $210 million in two auctions last week. It sold $70 million for liras today, the smallest amount since Oct. 3.

“The appetite for the Turkish lira is waning,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in an e-mailed response to questions. “A lot of investors have counted on the central bank to support the lira by its daily auctions. But since it is clearly not offering sufficient amounts at the moment and thus not intending to drive lira lower, investors are disappointed.”

Lira Forecasts, Probability

Fourth-quarter forecasts for the lira vary from 1.65 to 1.95 per dollar, with a median estimate of 1.80 liras, according to estimates from 18 banks compiled by Bloomberg. There is a 53 percent probability that the lira will drop to 1.95 per dollar in three months, according to implied probability calculated from currency options.

The ruble, zloty and forint may fare better than the lira “if and when we get some normalization in Europe,” Akarli said. “For the lira, the real inflection point will come as the re-balancing process reaches a more advanced stage and the economy troughs, possibly sometime in the second quarter of 2012,” he said.

BNP Paribas SA said it’s “less constructive” on the lira after the currency strengthened to a target of 1.82 per dollar last week. “The central bank is refraining from selling high amounts of foreign exchange and save ammunition for the rainy days,” it said.

The bank was expected to sell $350 million to $500 million for liras today, reacting to the lira’s under-performance against emerging market peers, BNP said in an e-mailed report today before it announced the auction’s size.

--Editors: Ana Monteiro, Peter Branton

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Mark Bentley at mbentley3@bloomberg.net


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