ISTANBUL- The Turkish lira rallied 1% against the dollar on Tuesday to its strongest level since early September, boosted by a UK trade deal and extending gains since the central bank raised its key interest rate last week.
Britain and Turkey are set to sign a free trade agreement (FTA) on Tuesday, and emerging market currencies were supported by hopes that a $2.3 trillion U.S. stimulus package will be approved by the Senate.
The lira stood at 7.3700 against the U.S. currency at 1217 GMT in thin trade due to end-of-year holidays, still 19% weaker than at the end of last year. Last Thursday, the central bank raised its one-week repo rate to 17% from 15%.
"The FTA is positive for trade after Brexit. After the central bank's steps the expectation is that foreign inflows will increase and this is positive for the lira," said one trader.
The lira has also been boosted this week by institutional buying ahead of a tax payment deadline, according to traders.
The central bank has sought to cool double-digit inflation and bolster its credibility under new Governor Naci Agbal, who took the reins in a shock leadership overhaul in which President Tayyip Erdogan pledged a new market-friendly economic era.
Since Erdogan appointed Agbal on Nov. 6, the lira has rallied nearly 16%.
(Reporting by Nevzat Devranoglu; Writing by Daren Butler; Editing by Ece Toksabay and Jonathan Spicer) ((daren.butler@tr.com; +90-212-350 7053; Reuters Messaging: daren.butler.thomsonreuters.com@reuters.net))
