The Turkish lira weakened on Friday after sources said the United States was poised to impose sanctions on Turkey over its acquisition of Russian S400 air defence systems, a move set to worsen ties between the two NATO allies.
Separately, European Union leaders agreed on Thursday to prepare limited sanctions on Turkish individuals over an energy exploration dispute with Greece and Cyprus, postponing any harsher steps until March.
The sanctions threat pushed the lira to as far as 7.9375 versus the dollar, off 0.6. It shed another 1 late on Thursday after Reuters reported the pending U.S. sanctions, and has shed 25 this year, among the worst in emerging markets.
The U.S. move, likely to infuriate Ankara and weigh on ties as Presidentelect Joe Biden prepares to take office, is set to be announced as early as Friday and target Turkeys Defence Industries Directorate, sources said.
Two sources familiar with the matter, including a U.S. official speaking on the condition of anonymity, told Reuters President Donald Trump had given aides his blessing for the sanctions.
A treasury desk trader at one bank said the simultaneous moves by the United States and EU were negative but would not have a direct impact on the Turkish economy in the short term, and have only a limited market impact if they remain mild.
If sanctions are left like this, pricing may even turn positive in the period ahead, he said. But we understand that this may remain a mediumterm risk factor for the lira….