Let’s double down on Turkey sanctions

Let’s double down on Turkey sanctions

On Friday, the euro sagged to a 13-month low against the dollar, down 0.7 per cent to $1.1450, after the Financial Times reported that the European Central Bank was anxious about possible losses at eurozone banks operating in Turkey.

The dollar rose as exposure to Turkey could impact European banks and spark a domino effect as people begin to pull out of those banks and into USA assets, said Gregan Anderson, macroeconomic strategist at brokerage Bulltick LLC. Turkey's exceptionally large current account deficit makes the country's potential to fall into a severe debt crisis even greater. It was at R16.0729 to the euro from R15.8015, and at R17.9245 to the pound from R17.5780.

However, a defiant Erdogan brushed aside concerns, telling a roaring crowd of Turks in the Black Sea city of Rize not to worry.

"In that sense, the Turkey situation can be a contagion not only in Europe but across emerging markets", Anderson said.

A Turkish delegation met with officials from the departments of State and Treasury earlier this week as both sides sought a way out of the rising tensions.

Henri Barkey, a professor of International Relations at Lehigh University who follows Turkey closely and has been critical of its President, Recep Tayyip Erdogan, said the new tariffs are "an unnecessary escalation at a time when the decline of Turkish lira was already putting pressure on Turkey".

As far as ongoing effects on USA stocks, we'll have to wait and see.

Turkey's currency hit a record low against the United States dollar and euro early on Friday as it fell seven percent against the dollar, after initially losing 12 percent.

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Turkish President Recep Tayyip Erdogan and his newly appointed finance minister, Berat Albayrak, are due to speak at 2 p.m. local time Friday.

Trump's tweet caused a further drop in the Turkish currency, which is now down 13 percent on the day.

"The backdrop to endemic lira weakness is of course the familiar one of an economy suffering rising inflation and a burgeoning balance of payments crisis alongside a central bank that has in effect been stripped of much of its independence since Erdogan was re-elected.in June", Ray Attrill, head of foreign exchange strategy at National Australia Bank, said in a note. It is obvious how it will be done: "since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders", said Seyfettin Gursel, a professor at Turkey's Bahcesehir University.

Late on Friday, the rand was trading at more than R14 to the dollar, its worst point since a credit downgrade in November.

Last week, he called on Turks to convert their foreign currency and gold into Turkish lira to help the currency. Hard currency debt issued by Turkish banks suffered similar falls. "Albayrak's plan was uninspiring at best".

He is a self described "enemy of interest rates" and wants banks to lend cheap credit to fuel growth, something experts are anxious could seriously affect the economy.

Concerns about rapidly rising inflation in Turkey - above 15% year-over-year in July - have not been addressed by corresponding hikes in interest rates by the country's central bank.

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