Turkey’s lira soared nearly 1.5% yesterday on anticipations that its relationship with Washington would strengthen after the leaders of both countries decided to meet in late June while discussing (via telephone call) Ankara’s intention to buy Russian S-400 missile defense systems. In the past 24 hours, the USD/TRY pair declined from a high of 6.025 to a low of 5.8618, before recovering to trade at 5.9105.
The Turkish lira has lost nearly 14% in 2019 mainly due to increasing discord between the NATO allies and a potential US sanction for buying Russia’s S400 surface-to-air missiles. Washington is of the opinion that S-400s would endanger its F-35 fighter jets.
During yesterday’s telephone conversation, Tayyip Erdogan, the Turkish President, reaffirmed to the US President Donald Trump a plan to establish a committee to study the effect of S-400s. Both Presidents agreed to have a face-to-face meeting on the sidelines of a G20 conference in Japan by June end.
Erdogan said, “The default remains that Turkey will take delivery of the S-400s from Russia. So investors will need to see some further steps over the coming weeks to feel more confident that tensions are de-escalating.”
Following the news reports of a possible meeting between the US and Turkish President to resolve the pending issues, Turkey’s dollar-denominated sovereign bonds also rallied, with the 2030 issue rising 0.90 cents, representing the maximum gain in two weeks, as per data provided by Tradeweb.
Likewise, the 2045 issue rose 0.70 cents. Other financial markets also responded positively. Turkey’s main share index BIST100 increased by 2.11%, while the main banking index rose 3.34%.
The Turkish lira started strengthening this week after Hulusi Akar, the Defense Minister, said that S-400s delivery might get postponed beyond June. However, he guaranteed that the shipment would happen in the months ahead. The easing of tensions between the two countries was also boosted with the unexpected release of Serkan Golge, a Turkish-American former NASA scientist, imprisoned for the past three years.
Golge was on a family visit in southern Turkey when he was arrested in the aftermath of a failed coup, which Turkey blames on U.S.-based cleric Fethullah Gulen. In February 2018, Golge was sentenced to 7 ½ years for being a part of a terror group. The appeals court, later on, reduced the sentence to five.
The US State Department spokeswoman, Morgan Ortagus, greeted the release but refused to divulge further details. Notably, the Turkish central bank’s net reserves were $26.52 billion as of May 24th, an increase from $24.88 billion a week before.
The positive developments related to Turkey are expected to keep the lira bullish in the short-term.
Technically, the USD/TRY pair started declining after facing resistance at 6.1025. The next major support for the currency pair is 5.6725. The MACD histogram also has a negative reading. As a result, we can expect the Turkish lira to strengthen in the days ahead.
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