ISTANBUL: The Turkish lira weakened more than 2 percent on Tuesday, briefly reaching 5.6125 against the dollar, after the US halted delivery of equipment related to the F-35 fighter aircraft to Turkey.
The lira stood at 5.5570 against the US currency in early London trade, compared with a close on Monday of 5.4913.
The lira has been volatile in the uncertain aftermath of local government elections, weakening 2.5 percent on Monday to 5.7 to the dollar before recovering ground.
In Istanbul, both the main opposition Republican People’s Party (CHP) and President Tayyip Erdogan’s AK Party claimed victory in the mayoral elections. Later, both candidates said CHP’s Ekrem Imamoglu was around 25,000 votes ahead, but the AKP said it was filing objections to the results.
US officials have told their Turkish counterparts they will not receive further shipments of F-35 related equipment needed to prepare for the arrival of the stealth fighter aircraft, sources told Reuters on Monday.
Washington’s step to block delivery of the jet comes amid fears in the US and other NATO allies, that radar on the Russian S-400 missile system will learn how to spot and track the F-35, making it less able to evade Russian weapons.
“The lira is under pressure as now the focus is back on structural problems for the Turkish economy,” said Nikolay Markov, a senior economist at Pictet Asset Management.
The widening current account deficit could deepen Turkey’s economic recession through a further depreciation of the currency leading to higher inflation and borrowing costs, Markov said.
“The central bank should raise policy rates but that won’t happen because of pressure from the government,” although AK Party losses in the cities could reduce the pressure authorities were able to exert on the bank, he said.
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