Turkey lira crashes to new lows as market alarm grows

Cornelia Mascio
Agosto 10, 2018

Earlier, it had crashed some 12 per cent through the 6.00 level for the first time in history, trading at one point at more than 6.20 lira per dollar.

The lira went into free-fall, sinking more than 12 percent at one point to reach and all-time low, having now lost more than one third of its value this year against the U.S. dollar and the euro.

Relations between the two North Atlantic Treaty Organisation allies have taken a turn for worse amid dispute over the detention in Turkey of United States evangelical pastor Andrew Brunson on terrorism charges.

Talks this week in Washington failed to resolve the impasse which has led both sides to slap sanctions on senior officials amid fears of graver measures to come.

A plummeting Turkish lira sent ripples through global equities and emerging markets on Friday, as rising fears of a wider fallout sent investors scurrying for the safety of assets such as the yen and USA government bonds.

Inflation stands at almost 16% but Turkey's central bank is reluctant to act - especially with the president having described himself as an "enemy of interest rates".

The Turkish Lira is now under heavy pressure following comments by President Erdogan, lifting USD/TRY back to the area above 6.0 the figure.

Bank shares across the continent fell and the euro slipped to its lowest since July 2017 as the Financial Times quoted sources as saying the European Central Bank was concerned about European lenders' exposure to Turkey.

"President Erdogan's strengthened powers under the new presidential system have made it increasingly uncertain whether policymakers will be able to act to stabilise the economy", said William Jackson, chief emerging markets economist at Capital Economics in London.

"In most cases though, we suspect that this resilience will prove temporary", they said, highlighting expectations of rising USA interest rates and worries over growing USA protectionism.

Turkey will adopt a new economic approach under its executive presidency, one that will be decisive, sustainable and based on a "strategic mentality", Treasury and Finance Minister Berat Albayrak said on Friday.

But that was of course before the lira plunged by more than 10% on the day against the greenback.

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