The Turkish lira weakened on Monday morning by as much as 4.2% against the dollar after Sunday’s decision by the Turkish government to immediately suspend all non-immigrant visa services at Turkish consulates and embassies in the US.
Turkey’s tit-for-tat decision came just hours after the US announced the same thing.
Washington said on Sunday that it would be suspending all non-immigrant visa services to Turks in light of “recent events,” which have forced the Trump administration to “reassess the commitment” of Turkey to the security of US diplomatic offices and personnel within its borders.
The diplomatic row follows last week’s arrest of a US consulate employee in Istanbul for alleged links to religious leader Fethullah Gulen – the man that President Erdogan blames for a failed coup attempt in July 2016.
In what appears to be an attempt to mock or irritate the US, in its own statement, Turkey repeated word-for-word much of what the US had said, including references to “recent events” and Turkey’s need to “reassess the commitment” of the US to the security of its diplomatic facilities.
Unnerved by these developments, traders rushed to sell the lira in the first two hours of trading on Monday, which pushed USD/TRY as high as 3.7716 at one stage, from Friday’s close of 3.6119. A period of calm followed and the lira managed to make back some of its lost ground. By 03:30 GMT, USD/TRY was back in the mid-3.71s; still nearly 3% weaker than its value on Friday.
Monday’s movements put the lira down 9% against the dollar in the last four weeks and down 4.8% this year.
The lira remains at historically weak levels, which is stating the obvious for a currency that has lost 64% of its value against USD since a redenomination in 2005, and 99% of its value since the mid-1990s (ignoring the redenomination).
Potential investors continue to be frightened away from the lira and ownership of Turkish assets in general by inflation, which remains stuck in double figures. Consumer prices in Turkey rose 11.2% in the year to September according to official data.
Given the lira’s history, foreign exchange traders will be expecting an attack on the major 4.0 handle in USD/TRY sometime in 2018. USD/TRY’s post-redenomination high (lira low) came in January this year at 3.7812.