The Turkish lira's volatility has been gradually increasing along with the effects of the expectations regarding a possible interest rate hike in the U.S. by the end of the 2016.
The correlation between the Turkish currency's weakness and 10-year U.S. treasury bonds climbed to the top last week after an over two-year period along with the increase in the expectations related to the U.S. Federal Reserve's possible interest rate hike by the end of the year. The U.S. dollar/Turkish lira exchange rate, which was at 3.1210 by the time markets closed Friday, stood at 3.1060 on early Monday amid growing expectations the Fed would raise interest rates in December.
An increase in the interest rates in the U.S. reduces the appeal of high-interest assets. Emerging markets among G20 countries, like Turkey, which depend on the foreign capital in order to fund one of their biggest current account deficits, are adversely affected by the possibility of increasing interest rates in the U.S.