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Turkey’s lira sinks to 2-month low in post-election trade

Turkey lira Reuters
Amundi's tentative optimism is balanced by upcoming nationwide local elections in March

Turkey’s lira slipped to a two-month low as financial markets kicked off trading in the wake of the country’s Sunday presidential and parliamentary election.

The currency weakened to 19.70 to the dollar before retracing some of its losses to 19.66, on track for its worst session since early November.

That was not far off the 19.80 level it hit in early March following deadly earthquakes in February.

Parties of both incumbent Tayyip Erdogan and opposition rival Kemal Kilicdaroglu were claiming the lead but sources in both camps admitted they may not clear the 50 percent threshold to win outright.

The presidential vote will decide not only who leads Turkey and shapes the foreign policy of the Nato-member country of 85 million people, but also how it is governed and its economic future amid a deep cost of living crisis.

“It is hard to foresee a market-positive scenario emerging from today’s double vote in Turkey,” Wolfgango Piccoli at Teneo wrote in a note to clients.

Analysts expect the lira to face sharp adjustments in the wake of the elections following years of economic imbalances and unorthodox monetary policy.

JPMorgan forecast the lira could soften to levels of 24-25 to the dollar. Goldman Sachs said in a note in recent days that its calculations showed the market was pricing the lira to weaken by 50 percent in the next 12 months, including a sharp devaluation post-election.

The lira, which is prone to sharp swings before regular trading hours, has weakened 5 percent since the start of the year.

The currency has lost almost 95 percent of its value over the last decade and a half as sugar-rush economic policies have led to spectacular boom and bust cycles and rampant bouts of inflation and currency market turmoil.

A potential second round is scheduled for May 28.