(Bloomberg) -- A brief and sudden plunge in Turkey’s lira during early trading left traders scratching their heads and rushing to cut losses, before the currency settled on a more predictable path.
The lira weakened as much 1.4% in Asian hours to a record low of 34.4898 per US dollar, according to Bloomberg indicative pricing. The move was trimmed shortly after, with the currency trading little changed at 34.0477 as of 11:24 a.m. in Istanbul. The lira also witnessed a brief and sharp plunge against the Japanese yen.
“The Turkish lira movement was a mystery,” said Yoshio Iguchi, head of the market department at Traders Securities Co. in Tokyo. “Even though there was no particular news, the offered bid for Turkish lira-yen on the bank side began to expand rapidly. The move caused some of the longs in Turkish lira-yen to increase their moves, involving position adjustments in loss-making selling,” Iguchi said.
The pace of depreciation of the lira has accelerated this month following a global unwinding of currency trades. It has weakened 2.6% in August and is headed for its worst monthly performance since March amid increased demand for foreign currency among locals.
“Basically, it was a liquidity problem,” said Wako Ogawa, director of foreign-exchange sales at Deutsche Securities in Tokyo. “It seems that offers were no longer being made, the price suddenly went wide, and the price spiked. Eventually, the price stopped at the point where it hit the offer and liquidity recovered, then price went back and forth,” Ogawa said.
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