As the dollar rallies on constructive economic news, emerging market currencies are being hit by a wave of profit-taking.
However, there is independent pressure on the Turkish lira. The Constitutional Court just banned the main pro-Kurdish political party for links to militants and 37 members have been banned from politics for five years. The immediate thoughts are the implication for social unrest in Turkey and the electoral impact.
The lira has sold off roughly 1%, which is more than most of the other emerging market currencies. The lira is now trading below where it was on Dec. 1st when Fitch upgraded Turkey's sovereign rating by two notches. Thus far the dollar has held just below the week's high near TRY1.5143. A break of that area, however, could see a move toward TRY1.5220. A break of this area could signal a retest on the spike high from late Nov near TRY1.56.
The yield on Turkey's 2-year bond is up 3 bp to 9.36% today. The yield has risen 20 bp on the week. In contrast, today the Greek 2-year yield is off 8 bp and is up 119 bp on the week.
Disclosure: No positions