The effects of the Turkish military advance into Syria on the lira has made it October’s worst performing major currency. Of course, the lira is no stranger to volatility, but this month’s 5% dive against the dollar stands out when compared to a 1.3% gain for MSCI’s Emerging Markets Currency Index.
The broader emerging markets rally has been underpinned by signs of a partial trade deal between the United States and China and by stimulus, but Turkey-watchers have been rattled by threats of international sanctions over its actions in Syria. US president Trump warned on Sunday that “big sanctions on Turkey are coming” having already threatened to “obliterate” its NATO ally’s economy if Ankara’s attack on the Kurdish-led forces in north-eastern Syria went too far.
European Union governments also agreed on Monday to limit arms exports to Turkey, although they stopped short of a formal EU embargo on the country which has helped stem the tide of refugees from Syria and other nearby countries.