Investing.com - The Turkish lira rebounded from record lows against the broadly weaker U.S. dollar on Thursday a day after posting the largest one-day decline since a failed coup in 2016.
USD/TRY was trading at 3.7845, down 2.07% from Wednesday’s close. The pair hit highs of 3.9423 on Wednesday and ended the day with gains of around 2.0%.
It was the largest one-day decline in the lira since a failed coup in July that attempted to overthrow the government of President Recep Tayyip Erdogan.
Emerging markets have been hard hit since Donald Trump’s surprise U.S. presidential election victory in November, as the prospects of rising U.S. interest rates prompted investors to pull cash out of developing economies.
Turkey has become particularly fragile because of high levels of political and economic risk and relatively low central bank reserves to defend its currency.
A string of terror attacks in Turkey, uncertainty over the outlook for economic growth and worries about political instability have all pressured the lira lower.
The lira has already fallen around 7% against the dollar so far this year in spite of efforts by the country’s central bank to shore up the currency on Tuesday.
Turkey's central bank loosened foreign-currency reserve requirements by a half percentage point, in a move aimed at allowing banks to release foreign currency into the market to prop up the lira.
Data on Wednesday showed that Turkey's current-account deficit widened in November, adding to pressure on an economy already suffering from a drop in its currency.
A current account deficit means Turkey is reliant on foreign sources of financing to fund the shortfall.
Ratings agencies Standard and Poor’s and Moody’s both downgraded the country’s credit rating to junk status in 2016.
Moody's said Monday that bank profits will be hit by an increase in bad loans this year and warned of a "general worsening" in the investment climate in Turkey.
On Thursday, President Erdogan blamed a conspiracy for the recent plunge of the lira, saying those who used the exchange rate as a weapon were no different from terrorists.
Erdogan did not say who was to blame for the purported conspiracy.
Meanwhile, the U.S dollar fell to one month lows against a currency basket on Thursday after Donald Trump failed to address economic and fiscal policies in his first formal news conference as U.S. president-elect.
Trump disappointed investors who had been hoping he would outline his proposed plans to boost the U.S. economy with infrastructure spending and tax reforms.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, hit lows of 101.00, the weakest level since December 14 and was last at 101.91, off 0.77% for the day.