The lira strengthened, heading for its highest in six days, and erased earlier losses after European Central Bank President Mario Draghi signaled officials are prepared to do whatever is needed to preserve the euro. Bond yields fell.
The lira gained 0.3 percent to 1.8171 per dollar at 3:41 p.m., erasing a 0.5 percent loss spurred by Governor Erdem Basci, who may narrow the central bank’s interest-rate corridor as he shifts to a new monetary policy based on reserve requirements. Yields fell eight basis points, or 0.08 percentage point, to 7.81 percent in their second day of declines.
Draghi’s comments suggest the ECB may intervene in bond markets as surging yields in Spain and Italy threaten the 17- nation currency bloc’s existence. The corridor where Turkey’s central bank lends between 5.75 percent and 11.5 percent daily will probably lose its relevance within two months, Basci said in Ankara today. Turkey sends about 40 percent of its exports to the European Union.
“With markets fearing that Spain and Italy will soon need a bailout, speculations about a break-down of the currency union have gained traction lately,”Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments. “Draghi is indicating that this will not happen.”
“A lot of people will bank on the European Central Bank to pretty much ‘monetize’ the problem away. That this will have severe long term consequences too is basically being ignored. But right now, it is definitely spurring risk appetite which is beneficial for the lira,” Nguyen said.
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