Turkish lira weakens again over shaky U.S. ties

ISTANBUL: Turkey’s lira weakened on Thursday on concerns over troubled U.S. ties due to Ankara’s plan to buy a Russian S-400 missile defence system, and it failed to rebound when the government unveiled a $4.9-billion package for struggling importers.
Softer economic data this month also weighed as the lira stood at 6.1340 against the dollar at 1306 GMT, shedding some 0.65% from Wednesday’s close of 6.0945. It weakened as far as 6.1510 earlier in the day.
Investors were still digesting comments late on Tuesday by Defence Minister Hulusi Akar who said Turkey was preparing for potential U.S. sanctions over its purchase of the S-400s, even while he said there was some improvement in talks with the United States over buying F-35 fighter jets.
There are “fresh concerns over the escalation of tension between Turkey and the United States,” said Jason Tuvey, senior emerging market economist at Capital Economics. “Investors are getting increasingly concerned that this (sanctions) could be how it plays out.”
Ties with Washington neared a breaking point last year over the trial in Turkey of an evangelical pastor. The pastor was returned to the United States in October, but the currency had already spiraled into a crisis that tipped Turkey’s economy into recession.
The lira is down 38% since 2017 and has undergone a new bout of selling in the last two months in part due to U.S. ties, a trend of Turks stockpiling foreign currencies, and uncertainty over local election results.
Separately, Finance Minister Albayrak on Tuesday announced the package to bail out import-dependent sectors such as manufacturers, saying it would focus on automotive and chemical sectors, among others.
Economists have also expressed concerns about the central bank’s ability to defend the lira in the case of another sharp decline given its reserves have fallen in recent months.
The central bank’s net international reserves stood at $24.9 billion as of May 17, down some $1.8 billion from a week earlier. Its gross forex reserves stood at $71.75 billion, data showed on Thursday, down some $1.25 billion from a week earlier.
Confidence in the lira among Turks fell after last year’s currency crisis, with local individuals’ forex holdings rising steadily in the six months to April.
Locals’ forex holdings reached a record high as of May 17, standing at $182.26 billion.
Several indicators also deteriorated in May, signaling a downturn in economic activity as Istanbul mayoral elections were annulled and rescheduled for June 23. Economists have warned that this could divert attention from longer-term reforms and lead to more public spending.
Consumer confidence fell to its lowest on record, data showed on Tuesday. The manufacturing confidence index, which indicated pessimism when below 100, fell to 98.9 points from 105.5 points in April, data showed.
The capacity utilisation rate, a measure of how much of the economy’s potential output is used, rose to 76.3% from 75%.
Turkey’s dollar bonds also weakened across the curve with the 2030 issue losing 1.4 cents in the dollar, according to Tradeweb data.
The main BIST100 share index was up 1.03% and the banking index rose 0,94%. (Reporting by Nevzat Devranoglu and Ali Kucukgocmen, Editing by Daren Butler, William Maclean)

Source from: The Peninsula