Turkish lira hits fesh low against dollar amid fears of European contagion

Turkey’s
President Tayyip Erdogan.
Thomson
Reuters

• The Turkish lira has fallen more than 10% against the
  dollar after a Turkish delegation in Washington failed to
  prevent US sanctions.
• There are concerns that contagion could spread to
  Europe. The euro dropped below 1.15 against the dollar on
  Friday.
• “[The lira] is falling so fast that a parachute is the
  first thing that comes to mind to prevent the lira smashing
  into the ground,” Bart Hordijk, Market Analyst at Monex, Europe
  told Business Insider.
• Turkish President Recep Erdogan and his newly appointed
  finance minister Berat Albayrak are due to speak at 2 p.m.
  local time today.
• 
  
  You can follow the lira price live on Markets
  Insider.
  

The Turkish lira hit an all-time low against the dollar on Friday
and there are growing concerns that the country’s economic
troubles could spread to the eurozone.

The lira
fell 7% against the dollar to $5.9655 on Friday
morning after hitting an all-time low earlier in the
session. The overall drop for the year to date is over 35%. The
fall has come as Turkish President Recep Erdogan has moved to
take greater control of monetary policy.

The recent plunge comes after the Turkish delegation in
Washington failed to stop the US from imposing sanctions against
two senior ministers. The lack of central bank action to support
the currency is also spooking investors.

“[The lira] is falling so fast that a parachute is the first
thing that comes to mind to prevent the lira smashing into the
ground,” Bart Hordijk, a market analyst at Monex Europe, said in
an email.

The
dollar’s rally against the lira.

Markets
Insider

Concerns are mounting that the decline will start to hit European
banks. The Eurozone’s chief financial watchdog has become
increasingly concerned about the exposure of some of Europe’s
biggest lenders to the country. They include BBVA, UniCredit and
BNP Paribas, and the exposure to those lenders is being closely
watched,
the Financial Times reported.

The risk of contagion saw the euro
fall by 0.5% against the dollar to $1.1471 at 10.15 a.m. BST
(5.15 a.m. ET) on Friday.

Turkish President Recep Erdogan and his newly appointed finance
minister Berat Albayrak are due to speak at 2 pm local time
today. Erdogan has promised a new economic model driven by his
son-in-law and new finance minister Albayrak.

Erdogan spoke briefly on Thursday night and alluded to problems
with the currency, saying that “various campaigns” are underway,
adding: “If they have dollars, we have our people, our
righteousness and our God.”

Hordijk said in an email: “President Erdogan is the elephant in
the room… It is time for Erdogan to face reality.”

A “gigantic rate hike” of at least 500 basis points to calm
markets and a clear commitment from the Central Bank of Turkey to
support the currency could help halt the decline, Hordijk said,
adding: “Another bandage to stop the lira from bleeding to death
would be capital controls, but Erdogan opposes these measures.

“A painful admittance that his powers are outmatched by the
forces of markets and that he may have misjudged the economic
situation may be a lot to ask of the autocratic leader Erdogan,
but the alternative is that the lira will meet the ground at
terminal velocity; an impact that will damage the Turkish economy
for years to come,” he said.