Lira Halts Decline Versus Dollar as Investors Mull Syria Tension

  • Currency slid Tuesday as Trump approved arming Kurdish forces
  • Focus is now shifting to Erdogan’s Washington visit next week

Turkey’s lira halted a decline that took it to a two-week low against the dollar as investors digested the latest obstacle to hit the currency this year.

The currency slipped the most among emerging markets on Tuesday, and touched the lowest since April 21 earlier Wednesday, after U.S. President Donald Trump approved arming Kurdish forces in Syria to reclaim territory from Islamic State. Traders’ attention is now turning to spotting any signs of deepening tension between the U.S. and Turkey when President Recep Tayyip Erdogan visits Washington next week.

The lira climbed as much as 0.5 percent to 3.6048 per dollar and was 0.4 percent stronger as of 11:03 a.m. in Istanbul. It weakened to 3.6258 on Tuesday.

Turkey, a U.S. ally and NATO member, is aggrieved that the U.S. supports the Kurdish militia known as the YPG in Syria and maintains the fighters are linked to militants in their country that the U.S. classifies as terrorists. As U.S.-backed forces in Syria prepare to assault Islamic State’s de facto capital, Raqqa, the dispute between the U.S. and Turkey is intensifying, threatening to sabotage the battle plan.

Tuesday’s announcement is likely to draw a backlash from Ankara, according to QNB Finansbank and the relationship between the “two countries might strain, which would translate into pressure on lira denominated assets,” Istanbul-based economists including Deniz Cicek wrote in a note this morning. Erdogan is due to visit Washington May 16-17.

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Trump’s decision is threatening a rally in the lira that briefly saw it erase its year-to-date losses. The currency has recovered from a record low seen in January as the central bank keeps funding tight and investors pour cash into into the nation’s bonds.

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