The Turkish lira is down, but this is no rout

Investors are weighing whether Turkey’s military action in Syria will lead to US economic sanctions.

Turkish lira stock image
The lira weakened to 5.88 against the dollar from a close of 5.87 a day earlier [File: Murad Sezer/Reuters]

The Turkish lira weakened slightly against the dollar on Thursday as investors tried to come to grips with whether a ground operation launched by Turkish troops against a Kurdish militia in northeast Syria overnight will lead to the United States slapping punishing economic sanctions on Ankara.

Investors are concerned about fiery rhetoric from US congresspeople who have promised to punish Ankara with economic sanctions following the start of the incursion, including targeting Ankara’s military transactions and US assets of President Tayyip Erdogan

On Wednesday, US President Donald Trump said he would devastate Turkey’s economy if its operation in northeast Syria wipes out the Kurdish population there.

US congresspeople have taken an even firmer position. On Tuesday, Senator Linsey Graham, normally a staunch ally of Trump, threatened via Twitter to impose “sanctions from hell” on Turkey if it moved into northern Syria, and that there is bipartisan support among US politicians for such a move.

The lira fell to 5.88 against the dollar on Thursday from a close of 5.87 a day earlier. It weakened 0.5 percent on Wednesday when the operation began with air attacks.

Turkish troops were attacking a Kurdish militia in Syria which Ankara regards as a “terrorist” organisation, pounding them with air attacks and artillery fire before starting a cross-border ground operation.

The lira has come under pressure since the White House announced on Sunday the withdrawal of some US troops from the Syrian region near Turkey’s border.

The subsequent military operation has drawn almost universal condemnation internationally.

“We can say that the current pricing in the market is more focused on geopolitical concerns over international reactions to the Syria operation,” a senior banker said.

The market pressure could continue until Presidents Erdogan and Trump meet in November, the banker said.

Turkey’s sovereign dollar-denominated bonds came under pressure for a fourth straight day with longer-dated issues suffering the biggest declines. The 2038 slipped nearly 1 cent to a three week low, Tradeweb data showed.

Turkey’s main stock exchange index BIST100 was down 0.64 percent. Turkish banking index traded down 0.77 percent. 

Source: Reuters