Turkish lira weakens on concern for worsening U.S. ties

Turkey’s lira dropped on reports that U.S. President Joe Biden planned to recognise the Armenian genocide in a move that would worsen fraught relations between the NATO members.

The lira fell by as much as 2.2 percent against the dollar on Thursday. It was trading down 1.7 percent at 8.31 per dollar at 10:43 a.m. local time in Istanbul.

Biden is expected to formally recognise the mass killings of ethnic Armenians by the Ottoman Empire early last century as an act of genocide, the New York Times and Associated Press reported on Wednesday, citing U.S. officials. Armenian activists are lobbying Biden to make the announcement on or before Armenian Genocide Remembrance Day on Saturday.

Ties between the United States and Turkey have worsened over the past three years after Turkey purchased S-400 missile systems from Russia and launched a military operation against Kurds fighting alongside U.S. troops against Islamic State (ISIS).

The lira also declined after the Turkish state-run Anadolu news agency said the United States officially notified Turkey of its exclusion from a programme to develop and acquire the F-35 stealth fighter jet. The decision, first announced last year but not formally delivered, was made in response to Turkey’s acquisition and testing of the S-400.

A forex trader said U.S. relations may "become more tense in the near term", Reuters reported.

The Turkish currency has slumped by 28 percent since the start of last year as investors fretted over unorthodox economic policies followed by the government and central bank. That has raised concerns for a repeat of a currency crisis in 2018, sparked by economic overheating and a diplomatic crisis between Washington and Ankara over the detainment of a U.S. pastor on terrorism charges.

The lira also fell on Thursday after President Recep Tayyip Erdoğan said on Wednesday that the central bank could sell foreign exchange reserves to support the currency. That would threaten a repeat of mass sales of the reserves last year that left the bank’s war chest severely depleted.