The Turkish lira has fallen against the dollar today after the US suspended the delivery of F-35 fighter aircraft equipment to Turkey.
The drop follows a tumultuous period in the foreign currency markets that saw a key lira lending rate hit 1,200 per cent amid claims of government meddling.
The lira had fallen 0.5 per cent against the dollar shortly after midday, having recovered its losses after briefly hitting $5.611. It has been a volatile period for the Turkish currency as the country waits for the official results of local elections.
Unofficial results said that President Recep Tayyip Erdogan’s Justice and Development party (AKP) had lost control of Ankara, the country's capital.
Yesterday the Turkish lira overnight swap rate rocketed up to 400 per cent from a closing rate of 23.75 per cent on Friday. The rate – the cost to investors of borrowing lira using foreign currency overnight – hit 1,200 per cent last week, by far its highest mark in history.
Some bankers believed the Turkish government was attempting to avert a lira crisis ahead of elections by leaning on banks to raise rates.
The US today suspended its planned delivery of fighter jet equipment to Turkey after the country failed to say it would not take military aircraft deliveries from Russia, Reuters reported.
Sean Darby, chief global equity strategist, said: “Despite conflicting claims over the local election results during the past weekend, President Erdogan’s clasp on power remains tight. Nevertheless there is unlikely to be any respite for the economy or equity market as real interest rates will need to remain high to keep inflation in check and deter capital outflows.”
Today’s fall against the dollar is more bad news for the lira after a difficult period. It came under pressure recently as investors looking to dodge risk amid a global slowdown sold emerging market currencies.
The lira was also squeezed by worries about a return to strained relations with the US surfaced over the issue of the Golan Heights and fears about the government loosening economic policy ahead of Sunday’s elections.