Turkish lira holds after Fed rate hike

By Andrew Jay Rosenbaum

ANKARA

The Turkish lira held at 2.95 against the dollar on Thursday, following the movement of most emerging market currencies after the U.S. Federal Reserve raised interest rates late on Wednesday.

Analysts said that a rout was not expected. "The Fed did what it had promised, and so markets were not shocked by the move," explained Christopher Dembik, an economist with Saxo Banque in Paris.

The Fed raised its federal funds rate to the range of 0.25 to 0.50 percent, from 0 to 0.25 percent. The central bank also committed to four more interest rate hikes in the coming year.

The lira at first gained against the dollar, and reached to 2.92 after the announcement. USDTRY later returned to its Wednesday's level of 2.95 in early morning trading on Thursday.

The dollar also gained gradually against the South African rand, which fell 0.47 percent to 15.01.

The Brazilian real also decline against the dollar from about 3.84 to about 3.89 on Thursday morning.

Analysts at JPMorgan warned, however, that the dollar was headed higher against both major and emerging market currencies in the coming weeks.

In a note published late on Wednesday, JPMorgan said that increasing dollar strength should be expected in 2016. But the dollar's increase in value would be gradual, according to the analysts.

Dembik agreed, saying that pressure on emerging market currencies would be steady, but not volatile.

"The Fed has made it clear that rates will continue to rise in the U.S., but not in a drastic way, just with gradual increases as the economy improves. This will mean that emerging market currencies will also react gradually, moving slowly but steadily lower against the dollar," Dembik explained.

In a press conference after the rate hike announcement, Federal Reserve governor Janet Yellen said that future rate increases "would not be mechanical." that there would be no link to specific data, including that of inflation which is still well below the Fed's target of about 2 percent at 0.5 percent.

But some analysts forecast that emerging market currencies will hold up better.

“Many currencies in emerging markets have nose-dived and they are undervalued,” said Mark Mobius, chairman of the emerging markets group at Franklin Templeton, said in an interview with Bloomberg Television after the announcement.