Euro edges up, but jitters over Turkey remain

London

THE euro recovered on Tuesday from earlier losses linked to the collapse of the Turkish lira, but investors said the exposure of European banks to Turkey would continue to trouble the single currency.

The lira has lost more than 40 per cent of its value against the dollar this year, hit by worries over President Tayyip Erdogan's calls for lower interest rates and fraying ties with the United States.

On Tuesday, however, the lira recovered some ground, trading at 6.60 to the dollar at 1115 GMT, up around 5 per cent on the day, after having crashed to an all-time low of 7.24 on Monday.

The currency was supported by news of a planned conference call in which the finance minister would seek to reassure investors concerned by Mr Erdogan's control of the economy.

The euro traded broadly flat at US$1.1406, having fallen to a 13-month low of US$1.1365 on Monday. So far this month it has lost 2.4 per cent.

"Everyone was talking about contagion because of the European banks' exposure but the notion in the market today is that the contagion is rather limited - it does look like the euro is losing its sensitivity to Turkey-related developments," said Manuel Oliveri, an FX strategist at Credit Agricole in London.

Other analysts said the euro's gains were unlikely to last long.

"We did not see much of an uplift in the euro despite some decent German growth data. That suggests to me this relief rally may be pretty short-lived," said Viraj Patel, a currency analyst at ING in London.

Investors remain nervous about the plunge in the lira, prompting capital outflows from other emerging markets that run hefty current account deficits and rely on foreign capital.

But emerging market currencies gained ground against the dollar on Tuesday with the South African rand up 1.6 per cent , the Russian rouble up 1.5 per cent and the Mexican peso up one per cent.

Traders shifted into currencies deemed safer, such as the yen and Swiss franc, underlining continued market fears about Turkey.

The franc rose 0.2 per cent against the euro after hitting a one-year high of 1.1288 francs on Monday. The yen, however, weakened 0.2 per cent versus the dollar to 110.9.

Until the crisis in Turkey is over, "risk aversion is likely to remain elevated, which will continue to benefit mainly the currency safe havens," said Antje Praefcke, a currency strategist at Commerzbank in Frankfurt. REUTERS