Rallies in ruble and lira lack strong foundations

The Russian ruble and Turkish lira have been among the best performing EM currencies this month, but we don’t think their rallies will be sustained. It seems most likely that the ruble will settle roughly at its current level, and we expect the lira to suffer renewed falls later in the year. The Russian ruble and Turkish lira have been among the best performing EM currencies this month, but we don’t think their rallies will be sustained. It seems most likely that the ruble will settle roughly at its current level, and we expect the lira to suffer renewed falls later in the year. Currencies in Central Europe have been the worst performers in the emerging world so far in February, having followed the euro down against the dollar. In contrast, the Turkish and Russian currencies have posted strong gains.  Nonetheless, we find it hard to justify the rally in either currency. The ruble’s appreciation has been stronger than its historic relationship with oil prices would suggest. What’s more, the rally came at the same time as hopes for an end to sanctions relief dissipated and the central bank resumed purchases of FX on behalf of the Treasury, which many thought would cause the ruble to weaken.