Turkey’s lira fell to a fresh record low against the euro on Tuesday, extending losses from the previous session, as investors worry about the country’s dwindling foreign exchange reserves, growing foreign-denominated debt, central bank intervention and potential sanctions from the EU.
The lira was briefly trading at a record low of 8.1733 to the euro just after 10 a.m. London time on Tuesday. The euro, which is also at its strongest level against the dollar in almost two years, has gained about 22% on the lira year-to-date according to Reuters Eikon data.
The lira’s drop comes despite aggressive dollar selling by Turkish state banks to prop it up, reported by the Financial Times to amount to some $2 billion this week alone. The country’s foreign reserves have dropped dramatically in recent months, and further inflation and currency devaluation now appears inevitable. The Turkish central bank had managed to hold the lira’s rate against the dollar relatively steady at around 6.85 since mid-June after hitting a record low of 7.269 to the greenback in early May, but on Tuesday it dipped to 6.945, in what many analysts suspect has to do with the foreign exchange shortage.
Turkey’s relations with the EU are also on rocky ground on a number of fronts. EU officials have discussed sanctions on Turkey for its proposed plans to drill for oil and gas in the eastern Mediterranean, in waters contested with Greece.
Turkey’s months-long decline in FX reserves and upward-creeping inflation preceded the coronavirus pandemic, but the virus has exponentially increased Turkey’s problems; its tourism for the year, a vital source of foreign currency, has been all but obliterated, and Moody’s and the International Monetary Fund both forecast a 5% economic contraction for 2020.
June’s inflation figure in the country of 82 million was reported at 12.6% — up from 11.4% in May, and the highest since August of 2019, rising steadily from 8.6% last October.
Turkish lira falls to a fresh record low against the euro amid investor selling, sanctions risk, CNBC, Jul 28
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