U.S. Markets

Euro, emerging market currencies fall on Turkey's economic woes

NEW YORK (Reuters) - The fallout from the Turkish lira’s plunge sent the euro to a new 13-month low and hammered emerging market currencies as investors worried about contagion scrambled for the safety of the yen and the Swiss franc.

Turkish Lira and Euro banknotes are seen in this picture illustration taken June 25, 2018. REUTERS/Dado Ruvic/Illustration

Turkey's lira clawed back some losses on Monday from a record low 7.24 lira per dollar TRYTOM=D3 after the country's central bank said it would provide liquidity and cut reserve requirements for banks, but the currency was still down around 10 percent on the day. It has shed more than two-fifths of its value in 2018.

That knocked emerging market currencies. The South African rand was down 2.4 percent ZAR=, after earlier falling over 10 percent to a more than two-year low in earlier trading. The Indian rupee INR= stumbled to a record low, while the Mexican peso lost 1.4 percent MXN=D2.

Investors have grown increasingly concerned about President Tayyip Erdogan’s growing control over the economy and a deepening diplomatic rift with the United States, with those concerns snowballing into a market panic last week.

Aaron Hurd, senior portfolio manager in the currency group at SSGA in Boston, said however that while contagion was happening, it was “muted when compared to other emerging market crises.”

Nevertheless, traders anxious about the euro and emerging market currencies piled into yen and Swiss franc, which are seen as safe-haven currencies in times of market turbulence.

Anxiety about Spanish, Italian and other European banks’ exposure to Turkey hurt the euro, as did nervousness over political uncertainty in Italy.

The single currency fell to $1.1365 EUR=EBS, the lowest since July 2017, before buying emerged which pushed it to $1.13965, down 0.1 percent from Friday, according to EBS data.

The MSCI index on world equity prices .MIWD00000PUS fell to a one-month low.

Earlier on Monday, the euro touched 125.15 yen, the lowest since May 30 before recovering to 126.195 yen EURJPY=EBS, while it weakened to a one-year low of 1.1285 Swiss franc per euro EURCHF=EBS

The dollar slipped to its lowest in over six weeks against the yen JPY=EBS at 110.95 yen. The greenback was down 0.2 percent to 0.9937 franc CHF=EBS.

The dollar, which has rallied since the lira crisis, was little changed. An index that tracks the greenback against a basket of major currencies .DXY was steady at 96.367, below its 13-month high of 96.522.

Emerging and other markets slammed by nervousness about Turkey since last week will recover, some analysts said.

“Obviously, this is a situation we will continue to need to watch closely, but I expect we will get past it without too much pain in the risk markets,” said Ellis Phifer, senior market strategist at Raymond James in Memphis, Tennessee.

(GRAPHIC-World FX rates in 2018:

Additional reporting by Tommy Wilkes in LONDON; Editing by Susan Thomas and Diane Craft