Turkish Lira Rises Before Meeting Between Biden and Erdogan

(Bloomberg) -- Turkey’s lira rallied the most in emerging markets as investors watched a meeting of President Recep Tayyip Erdogan with his U.S. counterpart Joe Biden for signs whether the two countries can heal their rifts.

The currency rose for a seventh day, the longest streak of gains since February 5. The advance comes on the heels of a swap deal with China that will enable Turkey to reduce its use of dollars in international trade.

“The main determinants of the lira’s trajectory is the NATO summit and relations with the U.S.,” said Onur Ilgen, the head of treasury at MUFG Bank Turkey in Istanbul. The swap agreement was an additional positive for the lira, he said.

Erdogan’s meeting with Biden at Brussels under the aegis of the North Atlantic Treat Organization is a crucial moment for the lira, which has been weighed down years of policy frictions between their two countries. But the currency has been climbing this month amid expectations the summit provides an opportunities to reset the ties.

Erdogan Aims to Focus on Future Cooperation in Talks With Biden

The lira also got a mini boost from Turkey’s $3.6 billion swap agreement with China, increasing the limit on their existing currency arrangement to $6 billion. The arrangement with one of Turkey’s biggest trading partners will allow the country to boost trade in local currency and avoid using dollars, but analysts say it will only support the central bank’s reserves on paper and temporarily.

The deal allows only the central bank to use the swap proceedings for trade purposes and thus it will only make the gross and net reserves look higher, according to Istanbul-based economist Haluk Burumcekci.

Market Metrics

* USD/TRY -0.4% to 8.3622
* 10-year benchmark lira bond yield -6bps to 18.03%
* 5-year CDS flat at 371bps
* Borsa Istanbul 100 Index +0.2% to 1,463.38
* U.S. Treasury 10-year bond yield +1bps to 1.46%
* Brent crude 0.6% to $73.11 per barrel

©2021 Bloomberg L.P.