Euro dips as investors dump riskier assets

London

THE euro slid to a 13-month low, emerging market currencies slumped further and the yen surged to a six-week high on Monday as the fallout from the Turkish lira's crash sent investors into safe-haven currencies.

As investors dumped riskier assets and worried about contagion, emerging markets reeled. South Africa's rand was down 2.7 per cent after falling more than 10 per cent in earlier trading, Mexico's peso was 2 per cent lower and the Russian rouble was down 0.8 per cent.

Turkey's lira rebounded on Monday from record lows after the central bank pledged to provide liquidity and cut reserve requirements for banks, but the currency was still down around 10 per cent on the day. It has shed more than two-fifths of its value in 2018.

"The big fear in the market is that we are headed for a full-blown emerging market crisis," said Ulrich Leuchtmann, a strategist at Commerzbank, citing the 1997 Asian financial crisis.

He believes the market was "fundamentally in a different position" today because many emerging market central banks retained the confidence of investors after hiking interest rates over the past year. But a scramble into currencies deemed safer, such as the yen, underlined investor nervousness.

The euro fell to as low as US$1.1365, a 13-month low, before recovering slightly.

Analysts said most of the euro weakness was down to dollar strength but worries about the impact on European banks of the Turkish slump, despite the relatively limited exposure of most big lenders, had also played a role. Investor nervousness over political uncertainty in Italy is also weighing on the euro.

The dollar, which has rallied since the lira crisis exploded, gained 0.1 per cent to 96.463 against a basket of major currencies, just below its 13-month high of 96.522.

The yen surged 0.5 per cent against the dollar to 110.35 after earlier hitting a six-week high of 110.11. The euro slipped 0.8 per cent against the yen to 125.55 , close to a 21/2-month low of 125.15.

Investors have grown increasingly concerned about President Tayyip Erdogan's growing control over the economy and a deepening diplomatic rift with the US, with the concerns snowballing into a market panic last week.

The lira hovered at around 7 lira per dollar on Monday, down nearly 10 per cent on the day.

China's yuan dropped 0.4 percent in offshore markets to 6.8942 yuan per dollar. REUTERS