Turkish lira weakens as Ankara insists on Russian S-400 missile deal

The Turkish lira weakened to 5.90 against the US dollar nine days before Istanbul’s rerun election. Yesterday, the Turkish currency lost 0.80 percent of its values and tested 5.9030 against the dollar as tension increased between Ankara and Washington over the S-400 Russian defense missile.

Leader of Turkey’s main opposition, the Republican People’s Party (CHP) candidate Ekrem Imamoglu, narrowly won the mayoral election in Istanbul, the country’s largest city.

However, Turkey’s Supreme Election Board scrapped the result of the vote for Istanbul mayor on May 6 and ruled that a fresh mayoral contest must be held on 23 June.

Following the re-run decision, The Turkish Lira weakened to 6.1075 against the dollar, and since the cancellation, the lira couldn’t recover as investors reacted to uncertainty over the Istanbul election result.

Besides the internal politics, international tension has had a devastating effect on the lira.

US Acting Secretary of Defence Patrick Shanahan last week warned his Turkish counterpart Hulusi Akar in a letter.

“Turkey will not receive the F-35 if Turkey takes delivery of the S-400,” Shanahan wrote in the letter which heightened the tension between the two countries.

“I’m not saying Turkey will buy S-400 defense systems, it has already bought them; we’ve closed the deal,” Erdoğan told his ruling Justice and Development Party (AKP) group meeting in the capital Ankara on Wednesday.

At a press conference with French Foreign Minister Jean Yves Le Drain on June 13, Turkey’s Foreign Minister Mevlut Cavusoglu also made a statement similar to Erdogan’s on the S-400s.

“Turkey reject[s] the wording [in] the letter [by acting Defense Secretary Patrick Shanahan] to our defense minister. Nobody can give an ultimatum to Turkey, Turkey is a free and sovereign state and fulfills all of its commitments to NATO and other international organizations,” he said challenging the US government, Hurriyet daily news reported.

The lira reacted to Cavusoglu’s statement and increased from 5.80 to 5.9030 against the dollar. Following Cavusoglu’s remarks, Turkey’s Borsa Istanbul ended the day with losses. Completing the first half of the day with a loss of 1.6 percent 91.150 points, the stock market also traded in sales.

BIST-100, just before the closing (TS 17:40) was at the level of 90.542 with a loss exceeding 2.2 percent.

Borsa Istanbul ended the first half of the day with a 1,6-point fall with 91.150 points on Thursday. BIST 100 index recorded 90. 542 points with 2.2 percent lost at 17:40 Turkish time just before the closing.

Speaking to Bloomberg HT, Invest AZ Board member Hakan Avdan said that the main reason for the weak exchange rate and stock market movement is the crisis over the Russian S-400 defense system.

Avdan warned that the tension with the West creates risk on the Turkish market and lira volatility is expected to continue in this political tension.

Economists also commented that Turkish investors escaped from the lira and invested in the dollar as the amount of foreign currency held by Turkish residents in deposit accounts; grew by $2.8 billion in the week to June 7 and increased to a record amount of 185.807 billion dollars.

During the same period, domestic deposits in lira fell from 993 lira to 985 billion lira.

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