Turkey’s plummeting lira is sending ripples of fear through global markets today

Lira's value has dropped amid growing concerns about Mr Erdogan's expanding powers

Meanwhile, concerns were intensified on August 10 by a report in the Financial Times that the supervisory wing of the European Central Bank (ECB) had over the last weeks began to look more closely at eurozone lenders' exposure to Turkey.

"EUR/USD has broken below the recent 21 June low of 1.1509 to 1.1446 after the FT reported that the ECB was concerned about the Turkish exposure of some European banks". Should these banks see growing stresses there could be notable pass-through effects on Eurozone credit conditions.

The lira went into free-fall, sinking more than 12 percent at one point to reach and all-time low, having now lost more than one third of its value this year against the U.S. dollar and the euro.

"The markets now fear that sanctions could be imposed on Turkish banks".

The pound was up 0.15 per cent against the euro but was down 0.5 per cent against the dollar, taking it to a 13-month low.

The Australian dollar AUD= - often viewed as a proxy for global risk appetite because of its commodity reliance - was the biggest faller among developed currencies, down 1 percent on the day. "Look at what we were 16 years ago and look at us now".

President Erdogan made his comments while addressing supporters in Rize
Image President Erdogan made his comments while addressing supporters in Rize

"It is hard to pinpoint the point of no return (for Turkey and the lira)" said Tilmann Kolb in the Chief Investment Office at UBS Wealth Management. Wall Street was set for a weak open. A delegation from Ankara visited Washington this week to meet with officials from the US State Department and the Treasury, but no apparent solution to the crisis has been found. There were no signs of a breakthrough after the hour-long talks.

The TRY is in a full-blown currency crisis as the number of negative stories increases, according to analysts at Nordea Markets. "Growth will take a significant hit no matter what, so the important thing now is to do some damage control and stabilise the Lira".

"The near-term path for the TRY is more in the hands of Ankara. Due to the foreign debts of companies and banks and the current account deficit, there is a great need for foreign capital".

"We doubt Turkey is ready to limit its fiscal flexibility right now".

This could therefore well translate into the Euro staying under pressure.


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