Turkish Lira skids past 5 to the dollar on US sanctions news

ISTANBUL - Reuters

The Turkish Lira slid to a record low beyond 5 to the dollar and stocks fell yesterday, after the United States imposed sanctions on two Turkish ministers over the trial of a U.S. pastor accused of backing terrorism.

The lira first touched 5 to the dollar on Aug. 1, when the White House announced sanctions against Justice Minister Abdulhamit Gül and Interior Minister Süleyman Soylu over Turkey’s detention of Andrew Brunson.

The United States has blamed both for being involved in Brunson’s arrest and detention. Brunson, an evangelical Christian pastor from North Carolina, has lived in Turkey for more than two decades. He is charged with supporting the group Ankara blames for orchestrating an attempted coup in 2016. He denies the charges, but faces up to 35 years in jail.

Surpassing new threshold

The lira hit a record low of 5.0934 to the dollar early on Aug. 2, recovering to trade at 5.0400 by later in the day.

The currency has lost a fifth of its value this year, battered by rising inflation and concerns over the Central

Bank’s independence in the face of repeated calls by Turkish officials for lower interest rates.

Istanbul’s main share index, the BIST 100, fell 2 percent on Aug. 2, with banking stocks among the decliners.

The cost of insuring exposure to Turkish debt also rose on Aug. 2 to a 6.5 year high after the news.

Five-year credit default swaps jumped 16 basis points (bps) from the Aug. 1 close to 346 bps according to IHS Markit data, the highest level since January 2012.

Diplomatic disagreements with the United States, a NATO ally and a major trading partner, have long weighed on investor sentiment and the latest move by Washington added to the tension.

U.S. President Donald Trump and his Vice President Mike Pence had threatened Turkey with “large sanctions” last week if Brunson was not immediately released.

His lawyer’s appeal for his release was rejected this week.

Investors are also awaiting the latest set of Turkish inflation data on Aug. 3, with the annual reading expected to take another leg higher after coming in at 15.4 percent in June.