Turkey: Turkish lira weakens on geopolitical tensions
October 6, 2014
The Turkish lira (TRY) has been weakening sharply against the US dollar since the beginning of September. On 3 October, the TRY reached a seven-month low against the greenback, trading at TRY 2.29 per USD. This was 6.3% weaker than the level observed on the same day of the previous month. On an annual basis, the Turkish lira lost 14.5% against the U.S. dollar.
The TRY has come under pressure in recent weeks due to both domestic and external factors. Domestically, investors are worried about the country’s weak economic fundamentals—slowing economic activity and a persistently-large current account deficit—and rising geopolitical tensions at Turkey’s borders. On 2 October, the parliament authorized the government to carry out cross-border military operations in Iraq and Syria to fight Islamic State militants and allow allied forces to transit through Turkish territory. On the external side, prospects that the United States will raise interest rates and end its monetary expansion have also played a role in the weakening of the lira.
Author: Ricardo Aceves, Senior Economist