Euro on defensive as Turkish crisis sparks rush to safety

Emerging market currencies plunged as Turkey’s lira extended its precipitous slide

The Turkish currency plunged 25 per cent against the U.S. dollar last week, with most of that depreciation happening on Friday amid escalating tensions with the Trump administration and market uncertainty about the ability of President Recep Tayyip Erdogan to manage the mounting problems in the Turkish economy.

The currency tumbled on worries over Turkish President Tayyip Erdogan's increasing control over the economy and deteriorating relations with the United States.

The euro zone has also been hit by Turkish woes, particularly after a report by the Financial Times last week suggested the European Central Bank was increasingly concerned about euro zone banks with exposure to Turkey.

Brunson, who has been held since 2016, faces up to 35 years in prison on charges of allegedly aiding Kurdish separatists and a group that Erdogan blames for a failed 2016 coup attempt against him.

Since then, its relationship with Turkey, the sixth largest steel importer to the U.S., the world's biggest steel importer overall, has deteriorated, prompting Ankara to send a delegation this week to Washington to meet with both the State and Treasury Departments.

Trump has tweeted that he wants the pastor released. "We have not made concessions on justice so far, and we will never make any".

Asia share markets skidded and the euro hit one-year lows on Monday as a renewed rout in the Turkish lira drove demand for safe harbors, including the USA dollar, Swiss franc and yen.

"If we look back at Greece, all the credit spreads blew out and that transmits across to Aussie banks", he said. "There is no economic reason for the present (currency plunge) situation".

As of August 2018, Turkey has an external debt of US$406 billion, US$99 billion of which is short term.

The Indian rupee was also impacted by the Turkish crisis. Gold, along with other commodities that are priced in USA dollars, tends to retreat when the United States dollar rises.

"Ashmore is widely seen as the London-listed bellwether for emerging markets and its shares are unsurprisingly being sold off in the wake of the crisis in Turkey", said Russ Mould at AJ Bell. "The US is sacrificing its 81-million-strong ally Turkey for a pastor with links with terrorists".

Albayrak said in an interview published on Sunday that Turkey will start implementing an economic plan to ease investor concerns, stressing budget discipline and pledging that fiscal rules would be implemented for targeted indicators if necessary.

Kerry Craig, global markets strategist at J.P. Morgan Asset Management, said: "The decline in the Lira is multifaceted, caused not only by a weak external position in terms of current account deficit and inadequate currency reserves, but also the challenging political environment which exacerbates the vulnerabilities in the Lira".

Turkish lira to the USA dollar.

Turkey's central bank on Monday announced it was taking all necessary measures to ensure financial stability after the collapse of the lira, promising to provide "all the liquidity the banks need".

The US has responded by slapping financial sanctions on two ministers and later doubled steel and aluminum tariffs on Turkey.

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