The Turkish Lira’s Surreal 1500 Pip, Six-Hour Roundtrip

The Turkish Lira’s Surreal 1500 Pip, Six-Hour Roundtrip

The last time the Turkish Central Bank announced, after the fact, it has failed to intervene decisevely in FX markets, the country’s currency collapse became a vivid example of what happens when monetary collapse looms and the monetary authority is unable to do anything about it. This morning, things got even more surreal after the Turkish lira cratered from 2.32 to a record low against the dollar, just shy of 2.39, when at 5:30 Eastern time, the Turkish CB decided to do what Draghi, Bernanke et al are so good at doing: threaten with some unknown future action, in the process spooking everyone into covering shorts. To wit:

  • TURKEY CENTRAL BANK TO ANNOUNCE DECISION MIDNIGHT TOMORROW
  • TURKEY CENTRAL BANK TO HOLD EXTRAORDINARY MEETING TOMORROW 
  • TURKEY CENTRAL BANK MONETARY POLICY COMMITTEE TO MEET TOMORROW

What happened next was the most dramatic ramp in the USDJPY since December 30 for sure, and perhaps in history, when the pair plunged by 800 pips in the matter of hours.

Here is some more from the WSJ:

The Turkish lira rebounded strongly Monday after the central bank said it would schedule an extraordinary policy meeting on Tuesday to evaluate recent developments and take necessary measures to ensure price stability.

In a statement, the central bank said the decision would be published midnight local time (2200 GMT) on Tuesday. The news appeared to be interpret as a signal that Ankara would raise interest rates aggressively, sending the lira 2% higher at 1100 GMT.

Analysts said that failure to deliver significant increase in interest rates could spark a broad selloff. “They have to hike…and aggressively,” said Tim Ash, emerging markets economist at Standard Bank in London.

Last week, the central bank intervened directly in the currency markets for the first time in two years in an attempt to shore up the lira by spending precious foreign currency reserves.

Well, the hopes and prayers of the entire EM and DM world are now in the hands of Turkey. Make us proud, oh not quite European nation’s central bank and part with some more of your USD reserves in a way that would make Argentina proud. Hopefully in the process PM Erdogan does not do to you what he has so far done to anyone who has questioned his authority or inquired into corruption charges involving the Turkish oligarch: hand them a pink slip.

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