Turkeys lira led gains across emerging market currencies on Tuesday on optimism over tight monetary policy and improving economic conditions, while stocks rose for a second day as sentiment improved ahead of U.S. stimulus talks.
The lira rose 1.1 to hit a near sixmonth high, and has outperformed most of its EM peers this year after the central bank vowed to maintain tight monetary conditions until inflation is brought in line.
The currency has surged more than 3 since the central banks vow last Thursday, although concerns over President Tayyip Erdogans repeated demands to cut interest rates still persist. Data on Monday also pointed to an ongoing rebound in Turkish manufacturing.
We, too, think that the new central bank governor will do all that he can do to target inflation more fully this time around where we differ is being more sceptical about how long the president will patiently bear with this, Tatha Ghose, FX and EM analyst at Commerzbank, wrote in a note.
Most other currencies in Europe, the Middle East and Africa rose, with the South African rand adding 0.9. Investors were awaiting negotiations between U.S. President Joe Biden and Republican senators on a new COVID support bill.
Riskdriven EM assets marked steep losses last week on a mix of profit taking and uncertainty over the timing of COVID vaccine programs, but investors resumed betting on an eventual return to normalcy this year as infection rates slowed and more countries sourced vaccines.