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Turkey panics, lira continues to weaken

By Smart Currency January 30th, 2014

The Turkish Lira remains a hot talking-point. The currency was in freefall last week, with political fragility contributing to nervousness amongst traders regarding the economic outlook of emerging market economies. In response, the Turkish central bank held an emergency meeting on Monday night, after which they announced a bullish decision to double interest rates. We saw an instant strengthening of the lira as a result, but all gains were eradicated throughout the day, as traders continued with their concern that the Turkish economy will be left exposed by a slowdown in Chinese manufacturing and a reduction in US monetary stimulus.

Following the trend of the emerging market troubles, the South African rand also lost out yesterday. Following suit from Turkey, the South African central bank also hiked interest rates in an attempt to stabilize the currency. The hike had little impact, however, and we saw the rand lose ground throughout the day yesterday, nearing 2008-lows against sterling.

The Japanese yen showed significant strength, with the worries surrounding the emerging market economies playing into the hands of the traditionally safe-haven yen.

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