Turkish lira plunges to record low against dollar

Turkey’s national currency - lira tumbled to another record low against the dollar today. The lira traded down 9% against the U.S. dollar at 6.04 and briefly fell more than 12%. 

Then lira pared some of its losses to trade at 5.9646 against the dollar at 0745 GMT. The Turkish lira has lost 37% of its value this year, mainly fuelled by worries about Turkish President Recep Tayyip Erdogan’s influence over monetary policy.

Erdogan said Turkey was facing an "economic war" and noted the country would respond to those countries who had started it.

"We are facing economic attacks today, and we need to defend our country," CNBC cited Erdogan as saying. "The economic attack against us now is the same as the coup attempt against us. I'm urging our country to increase outputs, to increase exports."

Turkish stocks also fell on Friday as the iShares MSCI Turkey ETF dropped 11.4%. The ETF was already down 42.3% this year prior to Friday's losses.

The sharp drop in Turkish assets came after a delegation returned from Washington with no apparent progress on the detention of U.S. pastor Andrew Brunson, who is charged with supporting a group blamed for an attempted coup in 2016.

Meanwhile, concerns were intensified today by a report in the Financial Times that the supervisory wing of the European Central Bank (ECB) had over the last weeks began to look more closely at eurozone lenders’ exposure to Turkey.

The report said that the situation is not yet seen as “critical” but Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas are regarded as particularly exposed.

Turkey's Treasury and Finance Minister Berat Albayrak will announce the government’s latest plan for the economy at a press conference later today.

Last month, U.S. President Donald Trump threatened to slap "large sanctions" on the country if it refuses to free Brunson. The U.S. then announced on Aug. 1 sanctions on Turkey's justice and interior ministers, prohibiting U.S. citizens from doing business with them.

Political scientist Orhan Gafarli, speaking with Vestnik Kavkaza, noted that in conditions of a floating rate and internal problems in the Turkish economy, any sharp statement from the West can shake the Turkish lira. "External threats have a significant impact on our financial system, since the government is not able to significantly influence the lira exchange rate and sell dollars on the exchange in order to maintain a stable exchange rate. Now the situation is aggravated by rumors that in the coming week the US allies may impose sanctions on Turkey. If the political differences between the US and Turkey are not resolved, the escalation of the conflict will negatively affect our economy, although any collapse is not expected at the moment," he said.

"The crisis of relations with the US is very serious, we have fundamental disagreements over geopolitics in the Black Sea region and the Mediterranean. There are problems in bilateral relations as well, especially in the military sphere. The US does not help Turkey, its NATO partner, to develop air defense. At first they did not give us Patriots, now fighters. The US does not extradite the head of the terrorist organization FETO Fethullah Gulen to Turkey and wants to impose a multi-billion penalty on our Halkbank, which would affect the Turkish economy negatively. Moreover, Turkey did not join the sanctions against Iran and said that it would continue its trade with Iran. Thus, Washington is forcing Ankara to pay for independence," Orkhan Gafarli stressed.