Currency Volatility Tracker

Turkish Lira Plunges to All-time Low

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AP/Pitarakis photo
Turkish citizens gather at an exchange shop on August 14, 2018. Turkey's currency, the lira, has plumetted against the dollar in the past week.

Turkey's already troubled currency, the lira, fell to its lowest level ever against the dollar after President Donald Trump threatened Turkey with more tariffs. 

The Turkish lira plunged to a value of 6.93 to the U.S. dollar after briefly hitting 7.00 to the dollar on Monday for it's lowest value ever after Turkish President Recep Tayyip Erdogan and U.S. President Donald Trump exchange threats over tariffs and economic policy. Mr. Erdogan vowed to prevail in what he called an "economic war" and Mr. Trump threatened to double steel and aluminum tariffs on Turkey if the country doesn't release an American pastor. 

In just the past two weeks, Turkey's currency has dropped 36% against the dollar, the steepest decline of any world currency other than Venezuela.  For the year, the lira has fallen from a value of 3.763 to the dollar to the closing value last Friday of 6.428, a decline of 71%. In the second quarter from April 1st to the end of June, the Turkish lira was the third most volatile in the world behind only Venezuela and Argentina, according to the Currency Volatility Index (CVI), published quarterly by CreditPulse

Turkey's currency woes are largely the result of an ongoing battle between the country's central bank and its authoritarian president. Turkey's inflation is currently running at 16%, but the central bank has been limited in its ability to fight higher prices due to political pressure from Mr. Erdogan who wants to keep rates low.  As a result, analysts and investors fear the central bank will be unable to act and that businesses will struggle to pay down a debt load exceeding $300 billion, the majority of which is in foreign currency.

Turkey's economy declined 1.6 percent in 2017 but is expected to rise this year.  Turkey's credit rating is in severe decline as the yield on the country's 10-year sovereign bonds leaped to 20%, the highest level since 2008, according to the Wall Street Journal, and up from about 12% at the start of May.

Apart from currency problems, Turkey's stock market has also taken a beating in 2018 falling 28% in dollar value and 9.1% in lira value through the end of July.  Since August of last year, the Istanbul Stock Exchange has lost $75 billion of its market capitalization going from a level of $236 billion to $161 billion at the close of trading on July 31st.  Turkey's capital market is one of the least developed in the world with a capital market-to-GDP ratio of only 0.26.

The lira has been under increasing pressure for several years as President Erdogan has increased his power and turned his country away from the west and more towards Russia.  But the most recent nosedive came after the U.S. failed to get the release of an American pastor, Andrew Brunson, who was detained in October 2016 as part of a sweeping crackdown following a failed military coup that July.

After working through diplomatic channels for several months, the White House thought it had a deal for the pastor's release but the deal feel through because Turkey wants the U.S. to release from asylum a Turkish cleric that it thinks had a hand in instigating the coup. 

"Those who think they can bring us to our knees with economic manipulation don't know this nation," said a defiant President Erdogan in his second of two speeches on August 10th.  Mr. Erdogan vowed to prevail in what he called an "economic war."  Mr. Trump then threatened on Twitter to double steel and aluminum tariffs on Turkey, followed by another Tweet that "our relations with Turkey are not good at this time!"