The Turkish lira hits a new low after Erdoğan’s election victory

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The Turkish lira hit a new low against the dollar after President Recep Tayyip Erdoğan secured a victory in the country’s election over the weekend.

The lira weakened to 20.08 on Monday, the latest in a series of record lows, according to data from Refinitiv, as investors tightened on Erdoğan extending his domain in a third decade after beating his rival on Sunday in a hotly contested election runoff. This year the lira has collapsed by more than 7%.

Morgan Stanley analysts said the Turkish currency was likely to fall further “without a shift in the macro policy framework to prioritize disinflation and adopt market-friendly policies.”

Turkey’s economy is facing growing strain, with investors particularly concerned about the country’s dwindling foreign exchange reserves and rising inflation.

“Erdoğan’s biggest challenge is the Turkish economy. His victory comes against a backdrop of dangerous economic imbalances,” said Roger Mark, an analyst at asset manager Ninety One, adding that the president’s economic plans were “proving increasingly unsustainable”.

Elsewhere, Asian stocks were broadly higher and U.S. stock futures jumped on Monday after U.S. President Joe Biden struck a deal with Republican House Speaker Kevin McCarthy that would raise the U.S. debt ceiling and it would prevent an unprecedented default in early June.

Japan’s benchmark Topix stock index was up 0.7% and Australia’s S&P/ASX 200 was up about 1%. Hong Kong’s Hang Seng fell 1% and China’s CSI 300 lost 0.4%.

Markets in the US and UK were closed for holidays on Monday, but stock futures in Asia sent the S&P 500 up 0.2% and the technology-focused Nasdaq 0.4%. The S&P 500 index increased by more than 1 percent high in nine months on Friday on rising hopes for a debt ceiling deal.

US Treasuries were unperturbed in Asia on Monday, but the 10-year government bond yield closed down 0.02 percentage point at 3.798% on Friday. Bond yields move inversely with prices.

The deal reached Saturday followed days of tense negotiations between the White House and Capitol to avoid a looming default before the United States runs out of money to pay off its obligations on June 5.

Both sides have moved to quell discontent on compromise in their respective parties ahead of a vote expected Wednesday in the Republican-controlled House of Representatives, which would be followed by a vote in the Democrat-controlled Senate.

Fitch, the rating agency, last week put the US’s triple-A credit rating on negative watch due to the debt ceiling impasse.

“This has yet to pass both the House and the Senate, and the deal may not be palatable for the [Republican] Freedom Caucus or the more left-wing parts of the Democratic party,” said Kerry Craig, global market strategist at JPMorgan Asset Management.

Craig said that while the apparent deadline to raise the debt ceiling has been pushed back enough to provide time for an agreement, “there are still many things that could emerge that could see this [deal] rejected or partially renegotiated”.

“A House vote on the deal is likely midweek, the bill’s fate remains uncertain as some Republicans aimed for bigger cuts and some Democrats didn’t want cuts,” said Tom Kenny, senior economist at ANZ.

Kenny said recent readings on the US economy have been strong enough to lead the US Federal Reserve to decide to continue raising interest rates “if fiscal and financial uncertainties fade away shortly and without causing economic problems.”