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The lira rallied more than 1 per cent on Friday despite more signs of weakness in Turkey’s economy, putting the currency on track for its best week since May 2015 by a comfortable margin and flirting with a five-year record.

Data released this morning showed the country’s inflation rate rising to 9.2 per cent, its highest level in 12 months. It follows a sharp decline in the official measure of economic confidence earlier this week, and the loss of the government’s last investment-grade credit rating last Friday.

However, the lira has continued to make gains, buoyed by weakness in the dollar and the central bank’s insistence that it is willing to tighten monetary policy again after its decision to raise its overnight lending rate by 75 basis points.

At publication time the currency was 0.85 per cent stronger against the dollar, having rallied as much as 1.2 per cent on Friday afternoon.

That brings its weekly gain to 4.5 per cent, which if held would be its best week since November 2011.

However, while the rally has helped to offset some of January’s precipitous slide, it still has a way to go to fully recover from recent instability, as the chart below shows:

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