Turkish Lira Traders Brace for Chaos Ahead of Elections, Cost to Hedge Jumps to World’s Highest Level

Turkish lira traders are preparing for potential chaos in the run-up to next month’s elections, driving the cost to hedge against currency fluctuations to the highest level in the world. The Turkish lira’s one-month implied volatility against the dollar has doubled over the past two days as the tenor now reflects the May 14th vote. At 32.7% on Monday, it now outstrips all other currencies. Offshore lira funding costs have also surged, reflecting concerns ahead of the election.

Regardless of the election outcome, Wall Street banks have recently expressed their belief in the likelihood of a significant weakening of the lira, citing concerns over the government’s currency policy over the past few years. The lira has already fallen by 25% over the last year, reaching record lows. JPMorgan Chase analysts have predicted that the lira may slide to as low as 25 against the dollar, even supposing a commitment to reversing President Recep Tayyip Erdogan’s unorthodox policies post-elections.

Erdogan will be facing the toughest contest of his political career against an exceptionally broad opposition grouping, with Kemal Kilicdaroglu, who has promised a return to economic orthodoxy, leading in the polls, with the nation experiencing post-earthquake economic turmoil.