- Risk aversion dominates; yen gains
- Euro stuck below $1.14; dollar nears recent highs
- EM currencies hammered on Turkish lira fallout
- Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
(Adds details, context, updates prices)
The euro slid to a fresh 13-month low, emerging market currencies slumped further and the yen surged to a six-week high on Monday as the fallout from the Turkish lira's crash sent investors into safe-haven currencies.
As investors dumped riskier assets and worried about contagion, emerging markets reeled. South Africa's rand was down 2.7 percent ZAR= after falling more than 10 percent in earlier trading, Mexico's peso was 2 percent lower MXN= and the Russian rouble was down a more modest 0.8 percent RUB= .
Turkey's lira rebounded on Monday from record lows after the central bank pledged to provide liquidity and cut reserve requirements for banks, but the currency was still down around 10 percent on the day. It has shed more than two-fifths of its value in 2018.
"The big fear in the market is that we are headed for a full-blown emerging market crisis," said Ulrich Leuchtmann, a Frankfurt-based strategist at Commerzbank, citing the 1997 Asian financial crisis when even countries with a sound macroeconomic position were sucked into a deep sell-off.
Leuchtmann said he believed the market was "fundamentally in a different position" today because many emerging market central banks retained the confidence of investors after hiking interest rates over the past year.
But a scramble into currencies deemed safer, such as the yen, underlined investor nervousness.
The euro fell to as low as $1.1365 EUR= , a 13-month low, before recovering slightly.
Analysts said most of the euro weakness was down to dollar strength but worries about the impact on European banks of the Turkish slump, despite the relatively limited exposure of most big lenders, had also played a role.
Investor nervousness over political uncertainty in Italy is also weighing on the euro.
The dollar, which has rallied since the lira crisis exploded, gained 0.1 percent to 96.463 .DXY against a basket of major currencies, just below its 13-month high of 96.522.
The Swiss franc jumped to 1.1288 to the euro, within a whisker of a one-year high against the currency EURCHF= , but was little changed versus the dollar CHF= .
The franc is typically bought by investors in times of market flux but Societe Generale strategist Kit Juckes said the market would need to see "pretty serious risk aversion" to boost the franc against a rallying dollar.
The yen surged half a percent against the dollar to 110.35 JPY= after earlier hitting a six-week high of 110.11.
The euro slipped 0.8 percent against the yen to 125.55 EURJPY= , close to a 2-1/2-month low of 125.15.
CONTAGION FEARS The most striking moves were in emerging markets as the Turkish lira's rout rippled outwards.
Investors have grown increasingly concerned about President Tayyip Erdogan's growing control over the economy and a deepening diplomatic rift with the United States, with those concerns snowballing into a market panic last week.
The lira hovered at around 7 lira per dollar TRY= on Monday, down nearly 10 percent on the day.
China's yuan dropped 0.4 percent CNH=EBS in offshore markets to 6.8942 yuan per dollar.
The Indian rupee INR= and Indonesian rupiah also weakened, down by 1.5 and 0.8 percent respectively.
BNY Mellon's chief currency strategist Simon Derrick said that without more meaningful action from Turkish authorities, there would be renewed pressure on the lira.
"With signs of contagion already starting to emerge elsewhere ... in a fragile August market, the worry must be that risk aversion returns very rapidly," Derrick said.
