Turkey crisis: Indian rupee hits new record low as European markets rally

Indian rupee fell to new all-time low due to Turkish problems, but markets elsewhere showed improvement

European markets turned positive on Tuesday morning, despite the ongoing crisis in Turkey, which pulled the Indian rupee to a fresh record low.

The FTSE 100 opened relatively flat but rose in early trading, while the Euro Stoxx 50 was up 0.5 per cent at the open, while Germany’s Dax also added 0.5 per cent.

The Turkish lira avoided another sharp decline, despite a lack of progress in addressing Turkey’s economic problems, which “allowed the markets to get off to a decent start on Tuesday”, according to Connor Campbell, financial analyst at Spreadex.

However, the ongoing weakness in the lira dragged the rupee down to as low as 70.08 per dollar.

Jameel Ahmad, global head of currency strategy at FXTM, said the decline in the rupee was a good indicator of current investor sentiment towards taking on risk.

“At present there is a high "risk-off" attitude from investors, which is negatively impacting emerging market currencies as a whole,” he said, adding that “the whole region of Asia’s emerging markets is struggling as a result of the lira crisis”, with the Indonesian rupiah, Malaysian ringgit, Thai baht and Chinese yuan also weakened.

“The most recent incident with the ongoing currency crisis in Turkey provided another escalation towards investors remaining even more hesitant towards taking on "risk" (i.e.: investing in emerging markets) at a time where market uncertainty is already intense from the concerns over trade war threats and the political risk element between the United States, Iran and Russia,” Mr Ahmad said.

The crisis in Turkey stems from both a diplomatic feud with the US over a pastor accused of being involved with 2016’s failed coup, and the country’s huge borrowings in foreign currencies. Data from the Bank of International Settlements points to dollar claims of $148bn (£116bn) and euro claims of €​96bn (£86bn) among local Turkish lenders.

Meanwhile, the pound began trading on Tuesday up 0.2 per cent against the dollar, and up 0.17 per cent against the euro.

Investors are waiting for the latest official figures on UK jobs and wages, with wage growth in June expected to be unchanged at 2.5 per cent.

Elsewhere, Mr Campbell noted that Japanese and Australian markets “regained some sense of composure following the recent Turkey-led declines”.

“Interestingly, the Chinese and Hong Kong markets remained entrenched in a downward spiral, with a whole host of disappointing economic numbers from China denting confidence,” he added. “Weaker than expected fixed asset investment, industrial production, and retail sales figures were accompanied by a sharp jump in unemployment.”