The U.S. Federal Reserve’s (FED) signaling that it might gradually abandon stimulus programs rocked the Turkish markets along with all emerging markets as the U.S. Dollar reached an all-time high against the Turkish Lira and the stock exchange faced sharp falls today.
FED chairman Ben Bernanke said late on June 19 that the U.S. economy was expanding strongly enough for the central bank to begin slowing the pace of its asset-buying campaign later this year.
Right after Bernanke’s remarks, the dollar broke two records today by first climbing to 1.9205 liras and then to 1.9290 liras.
The exchange rate and the basket retreated from historically high levels as Turkey’s Central Bank announced it had opened two exchange sale tenders – the first worth $50 million and the second $75 million – adding that it might open a new intra-day tender if needed.
In response to the Central Bank’s announcement, the dollar fell back to 1.92 liras.
During the day, the bank had organized four intra-day exchange sale tenders that totaled $175 million.
Emerging markets, many of which have been primed by the cheap FED cash, saw some of the biggest selling as investors rushed to the exits.
Investors have rushed into emerging market assets in the past couple of years, as the FED’s stimulus program kept U.S. interest rates at rock-bottom levels. Those positions are now being unwound.
However, the FED decision rocked the stock exchange as well. The Borsa Istanbul (BIST) 100 index, which began at the session with losses around 2.36 percent, fell below the 76,900 level.
However, as the sales continued through the session, the loss of index surpassed 4 percent and it plummeted to around 75,500.
The morning session was closed at 75,397 with a 4.36 percent loss.
Meanwhile, the yield of Turkey’s benchmark interest rate touched the highest point since last year’s October and reached 7.42 percent.
But the economy analysts split over the possible mid-term impact of the FED decision over Turkish markets, as some say it will spark capital entrance into the market, while others fear a possible increase of sales which have already risen since the beginning of anti-government protests known as Gezi Park protests.
Gold was the first to respond to the FED’s signal as its prices tumbled to their lowest in more than two and a half years, and silver fell by more than 6 percent.
Its fall picked up momentum after it broke through its April low at $1,321 an ounce, a key support level, taking it as low as $1,295.74 an ounce, its weakest since September 2010.