Turkey’s lira is in the grip of one of its worst routs of modern times, and markets are sensing more weakness ahead - but also that its central bank will jack up interest rates massively to try to turn the tide.
Roiled by problematic politics, big deficits, double-digit inflation and newly imposed U.S. sanctions, the lira is heading for its worst day, week and month since its financial meltdown of 2001.
The lira slumped 15 percent on the day on Friday, leaving it down more than 40 percent since the start of the year, and as the charts below indicate, there are signs it could lose still more ground.
1/ SCALE OF THE MOVE
The modern lira’s biggest-ever slump was a 36 percent drop over roughly six weeks at the height of the 2008-09 global financial crisis. Its current slide, which began roughly last September, now amounts to 46 percent.
Barring a remarkable fightback in coming months, this will be its sixth straight year of losses.
It is also the most undervalued of the major emerging currencies in real effective exchange rate (REER) terms, which measure it against the currencies of trade partners, adjusted for inflation.
Technically the lira's all-time REER low was in October 2001. Renaissance Capital says this equates to 5.16 per dollar in today's prices.
Friday slump took the lira spot rate to 7 per dollar at one point.