The lira weakened for a third day, erasing earlier gains, after attempts to form a new government in Greece failed, increasing concern the escalation of debt crisis in Europe will limit appetite for riskier assets.
The lira depreciated 0.5 percent to 1.8191 per dollar at 6:08 p.m. in Istanbul, heading for the weakest level since March 20 and giving up its intraday rise of as much as 0.5 percent. The yield on two-year benchmark debt advanced for a third day, up four basis points, or 0.04 percentage point, to 9.6 percent.
Fresh elections will now be held in Greece, Costas Bitsios, a presidency official, confirmed in comments to reporters in Athens. He said a meeting will be held tomorrow to form a caretaker government. The lira earlier traded stronger after the central bank cut repurchase agreements at the lowest policy rate of 5.75 percent to 2 billion liras ($1.1 billion) today from 4 billion liras yesterday, restricting money supply.
“A possible exit from euro will create a capital problem in the banking system and great uncertainty,” Sant Manukyan, global strategist at Is Investment Securities in Istanbul, said in e-mailed comments.
Emerging markets cannot remain immune to a freeze in Europe’s financial system, Manukyan said. Turkey, a European Union candidate, sells half of its exports to Europe.
The lira yesterday pierced its 200-day moving-day average of 1.8062, a key level for technical analysts. Crossing the moving average threshold and remaining above it is an indication the currency’s move may be sustained.
The central bank varies its funding rate on a daily basis, maintaining borrowing costs within a 5.75 percent to 11.5 percent interest-rate corridor introduced last year.
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