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Turkey's Lira hit a 7 month low after the U.S. assassinated Iranian Maj. Gen.Soleimani in an airstrike. Iran's Supreme Leader Ayatollah Ali Khamenei Swore retribution after the US Turkish state lenders sold up to $1.5 billion to stem the lira’s fall on Friday

Turkey Lire

The Lire was already under pressure and had been falling relative to the US dollar and other emerging market currencies ahead of the attack with regional risk concerns and new charges being implemented by Turkey's central bank. Increased political instability in the region and unconventional economic policies by the Erdogan government, which have included slashing interest rates on loans to encourage economic growth increase the risk cusion on the currency and may lead to more financial instability in 2020.

After the US attack we saw a rush to safety in assets like gold and the dollar away from riskier assets as tensions between the U.S. and Iran escalated. The Turkish lira fell as much as 0.4% to a seven-month low of 5.9781 against the dollar,.

TRY W 1 3 2020

Turkey's Currency Crisis

The fall was stemmed by state banks selling dollars to prop up the lira as they had been doing over the last year in times of heightened volatility.  In turkey the currency is seen as a key economic barometer for voters about Turkey's world standing and a driver of consumer confidence. However the intervention practice has been at best controverial with speculation mounting the sales amount to veiled intervention by the central bank. Another consequence is at has spooked foreign investors.

Bloomberg reported that in the run-up to municipal elections in March, state banks sold as much as $15 billion to support the currency, according to traders’ estimates. In the second week of October, transactions amounted to at least $3.5 billion amid fears tsanctions from Washington could deal a fresh blow to the Turkish economy.

Close Turkey and Iran Political Relations

Turkey is a neighbour of Iran and has close political relations. These are political and economic relations. Along with Russia the two countries have been trying to find a solution to the civil war in Syria. The US attack threatens an escalation in regional tensions.   Turkey's economy is in a fragile recovery from a currency crisis that erupted in August 2018.

Soleimani was seen as the architect of Iran's growing military influence in the Middle East with it's proxy wars throughout the region. With his death on Friday Iranian Supreme Leader Ayatollah Ali Khamenei swore "crushing revenge" on the United States.

Turkey Geopolitical

New Commmision Charges on Foreign Currency Reserves

Turkey’s central bank had announced it will begin applying a commission on foreign currency required reserves, broadcaster Bloomberg HT reported on Thursday. The Central Bank of Turkey will charge an annual 0.025% on required reserves for U.S. dollar-denominated deposits and participation funds held in U.S. or Euro denominated assets the report said.

The new regulation will take effect on Jan. 10, the report said which also saw banking stocks fall. Garanti BBVA, a favoured investment in Turkey for foreign banks and funds, fell 3.3 percent to 10.9 liras. The decision to introduce the new charge would be the latest in a series of measures introduced by Turkish authorities to encourage investments in the lira and to reverse dollarisation in the economy. The lira fellt 11 percent in 2019, after dumping 28 percent in 2018.

Turkey is gravely concerned that Soleimani's death will escalate tensions between the United States and Iran, the Foreign Ministry said in a written statement. The killing could turn Iraq, another Turkish neighbour, into a battle ground threatening regional peace and stability, it said. Turkish shares led a drop in stock prices in the European area. The main STOXX 600 index fell 0.4 percent to 417.9 points. The BIST 100 also declined after annual consumer price inflation accelerated to 11.8 percent in December, rising faster than most economists expected. Inflation had stood at 10.6 percent in November.

Sources: Bloomberg, TCN

From The TradersCommunity News Desk

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