Turkey’s lira led a decline in emerging market currencies ahead of the publication of the Federal Reserves’ minutes of its most recent meeting on interest rates on Wednesday. Turkish markets are closed today because of a national holiday, but off-shore trading witnessed substantial volatility, with dollar/TL testing 8.43 mid-day.
It has been a bad day for EM at large, which declined in tandem with Wall Street, as inflation fears and sporadic bursts of Covid-19 epidemics in Asia soured the mood on world economic recovery. By 7:30 pm Turkey, MSCI LatAm FX Index was down 0.3% vs the dollar, compared to 0.8% for TL.
Thus, Turkey-specific reasons appeared predominant in TL’s EM leading decline vs the dollar.
The lira fell after U.S. State Department spokesman Ned Price accused Turkish President Recep Tayyip Erdogan of anti-Semitic remarks during a conflict over the past week between Israel and militant group Hamas. Israeli bombardments of Gaza have killed hundreds of Palestinians.
The lira dropped by 0.8 percent to 8.4 per dollar. The currency has dropped by almost 15 percent since mid-March.
“We urge President Erdogan and other Turkish leaders to refrain from incendiary remarks, which could incite further violence,” Price said in a statement on Tuesday. “We take seriously the violence that often accompanies anti-Semitism and the dangerous lies that undergird it.”
Concerns among investors about Turkey’s relations with the United States are adding to fears over economic stability. Inflation in Turkey stands at 17.1 percent, the highest in major emerging markets outside of crisis-hit Argentina, and its current account deficit has widened to 5 percent of GDP due to unorthodox economic and monetary policies.
Price’s remarks about Erdogan are “lies”, Ömer Çelik, spokesman for Turkey’s governing Justice and Development Party (AKP), said in televised remarks on Wednesday.
“We strongly condemn the U.S. State Department’s targeting of our president,” he said.
Relations between Turkey and the United States have deteriorated after Turkey boosted ties with Russia – its purchase of Russian S-400 air defense missiles in 2019 have resulted in U.S. sanctions on its defense industry – and clashed with fellow NATO member Greece last year over territorial rights to the Mediterranean.
The United States has threatened further sanctions should Turkey fail to give up the S-400s.
The lira could also be suffering news of the global commodity boom, which is certain to hinder the combat against inflation, while adding to current account deficits. Ahead of the economy-critical tourism season, bad news is piling up, too.
Turkey’s daily Covid-19 case count jumped from ca. 10K to 12K in the two days since the nationwide lockdown was lifted. Russia extended its tourist ban until mid-June, as the country is on the quarantine list of UK and France.
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