Turkish lira, stocks fall as Syria incursion raises U.S. sanctions fears

Turkey’s lira declined against the dollar on Thursday after a Turkish military incursion into northeast Syria raised concerns about the possibility of U.S. economic sanctions.

The lira fell by 0.4 percent to 5.89 per dollar as of 2:14 p.m. in Istanbul, adding to losses of 0.5 percent on Wednesday, when the operation against Kurdish militants began with air strikes. The main BIST 100 share index dropped 0.8 percent to 98,860.08 points.

Turkish-backed militia, backed by the army and air force, are pounding the positions of Kurdish People’s Protection Units (YPG) fighters east of the River Euphrates, seeking to eradicate the threat to its security that Ankara says is posed by the militants. While Turkey sees the YPG as terrorists, the group has been backed by the United States in the battle against Islamic State (ISIS).

U.S. President Donald Trump allowed the operation during a phone call with Turkish President Recep Tayyip Erdoğan on Sunday, but has since backtracked somewhat, saying he will impose economic sanctions if Erdoğan goes too far. The U.S. Senate may also consider a bill imposing measures on the country, a member of NATO. 

The military operation has also drawn condemnation across the globe.

Turkey’s economy is tentatively recovering from a currency crisis sparked by U.S. sanctions in August last year. The steps were taken in response to Turkey’s detention of a U.S. pastor on terrorism charges.

Turkish sovereign dollar bonds also declined for a fourth-straight day and the cost to investors of insuring against their default rose.