Turkish Lira Surges After Trump Goes Soft On Sanction Threats
Turkey was one of the countries that US President Donald Trump had recently pointed his sanction guns towards. However, he recently softened his stance on the sanction threats, a move that sent the Turkish Lira on a bullish trend.
The Turkish Lira surged to 5.6766 which marked a 2% gain after the announcement that President Trump pumped the brakes on the sanction threats. This also pushed the USD/TRY below its 100-day moving average, and that will make it the first time that the price has moved below that point since March.
“The sanctions will go into effect latest by August, but they will be mild,” stated analysts from GlobalSource Partners.
The sanction threats are tied to Turkey’s purchase of Russian missiles
President Trump has this year demonstrated an aggressive push towards sanctions. The U.S. previously threatened to slap Turkey with sanctions if it proceeds with its plan to purchase Russian missiles. Speculation about the purchase led to the Lira’s weak performance against the US dollar as investors shied off.
Sources familiar with the matter revealed in June that President Trump has three sanction packages and that he was contemplating which one to impose on Turkey. The sources also revealed that one of the sanction packages would heavily affect the economy, which is already not doing well.
Now that the U.S. has eased its sanction threats, investors might be convinced to start betting in favor of the Turkish Lira, especially with the impressive 5.3% real yields of the Lira. The eased sanctions have already influenced a positive reversal, and analysts hope that the currency will maintain that bullish momentum.
The Lira’s surge also comes at around the same time that China and the U.S. have agreed to call a truce on their long-running trade war. This has shifted the trade atmosphere from a negative outlook to a positive one.
Turkish President Erdogan also made some optimistic comments about the situation in his statements. He believes that the U.S. will not impose sanctions on his country. This optimism trickled down to investors, thus fueling the Lira’s rally close to the highest point that it has been against the greenback over the past four weeks.
Turkey pushes towards economic recovery
The Turkish Lira has been one of the worst performing currencies due to the country’s weakening economic state. However, the government has been planning to implement measures such as forex reserve cuts and CBRT.
However, there is a chance that the country's central bank might not have to implement those corrective measures if the Lira continues to surge and cover most of the ground that it previously lost.
The Lira’s recovery may also encourage more investment as investors rush to ride the recovery wave. The Turkish government is also keen on policies that will help spur economic growth, a move that will also strengthen the Lira’s performance.
Nevertheless, the currency and the country’s economy are still not out of the woods yet. The economic performance is still sensitive to negative sentiments and market uncertainties, which might hold back the Lira's recovery.