Currencies

Turkish lira jumps after Trump-Erdogan call raises hopes of a thaw

Key Points
  • The currency had shed as much as 14% this year due in part to growing friction between the NATO allies and the risk that delivery of the Russian-made surface-to-air weapon would trigger U.S. sanctions.
  • Washington says the S-400s would compromise its F-35 fighter jets.

Donald Trump, President of the United States of America, and Recep Tayyip Erdogan, President of Turkey, during the NATO Summit last July.
Bernd von Jutrczenka | picture alliance | Getty Images

Turkey's lira jumped nearly 1.5% on Thursday on expectations that ties with Washington will improve, after the countries' leaders in a call set up a late June meeting and discussed Ankara's purchase of Russian S-400 missile defense systems.

The lira stood at 5.9300 at 0925 GMT, firming some 1.4% from Wednesday's close of 6.0155. Earlier, it firmed as much as 5.9200, its strongest since April 25.

The currency had shed as much as 14% this year due in part to growing friction between the NATO allies and the risk that delivery of the Russian-made surface-to-air weapon would trigger U.S. sanctions. Washington says the S-400s would compromise its F-35 fighter jets.

During Wednesday's call, Turkish President Tayyip Erdogan reiterated to U.S. President Donald Trump a proposal to set up a working group to assess the impact of the S-400s. The two also agreed to meet on the sidelines of a G-20 summit in Japan at the end of June.

The phone call sparked hopes that there may be a deal to remove the threat of sanctions on Turkey, said Jason Tuvey, senior emerging markets economist at Capital Economics.

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"The default remains that Turkey will take delivery of the S-400s from Russia. So investors will need to see some further steps over the coming weeks to feel more confident that tensions are de-escalating," he said.

Turkey's dollar-denominated sovereign bonds also surged, with the 2030 issue up 0.9 cents on the dollar, its most in two weeks, according to Tradeweb data.

The 2045 issue climbed 0.7 cents.

Turkey's main share index BIST100 rose 2.11%, while the main banking index was up 3.34% on Thursday.

The lira also firmed earlier this week after Defense Minister Hulusi Akar said that delivery of the S-400s may be delayed beyond June, even while he said it will arrive in coming months.

In another potential signal of easing U.S. tensions, Turkey on Wednesday released a Turkish-American former NASA scientist from jail with conditions.

Separately, the central bank's net reserves stood at $26.52 billion as of May 24, data showed on Thursday, rising from $24.88 billion a week earlier.