The Turkish Lira is currently showing a very strange reaction to what was announced this morning. It is showtime now. After days of threats by Donald Trump, the US has begun to impose sanctions on Turkey for invading Northern Syria and attacking the Kurds there. The statements of Donald Trump in his current tweet are clear. What does the USA have to look for so far away from home militarily? From now on, the USA prefers to use the means of economic sanctions to exert influence there.
And so the USA has now started to impose sanctions against Turkey. According to Trump, economic sanctions will be used aggressively! He is fully prepared to destroy the Turkish economy if the Turkish leadership does not change its dangerous and destructive course. One of the sanctions is that the negotiations on a 100 billion Dollar trade agreement between Turkey and the USA will be canceled. The US Department of Finance (full text of the publication available here) blacklists the Turkish Defence Minister, the Energy Minister and the two ministries, as well as the Minister of the Interior. This means that no more business can be done with these persons or institutions and their assets can be frozen in the USA. And the USA is raising its punitive tariffs on steel imports from Turkey to 50%.
Turkish Lira reacts strangely
So now it happened. The USA is starting its sanctions against Turkey. And these are still “relatively” harmless steps. Further sanctions could follow. The reaction on the currency market is just more than funny. In the last few days the Turkish Lira had fallen considerably. It was precisely because people were afraid of the US sanctions against Turkey, which were threatened. Now the Turkish Lira is rising against the US Dollar this morning. That is more than strange! On the stock exchange there is the slogan “buy the rumour, sell the facts”. In this case it would have meant “buy the US Dollar, and buy the Lira back if sanctions are imposed”. But imposing sanctions on a state is different than when a company’s quarterly figures exceed analysts’ expectations.
We can only guess why the US Dollar vs. Turkish Lira has fallen from 5.92 to 5.86 since 6 a.m. this morning (Lira appreciation). Is the Turkish central bank intervening to prevent a Lira crash from occurring in the beginning? Or are state-controlled Turkish banks buying masses of Lira? Well possible, but we don’t know. In any case, the Turkish Lira is now more than ever a hot box, especially after this strange reaction. (in chart USD vs Lira since last Thursday).