October 23, 2019 / 5:23 PM / 22 days ago

Turkish lira furthers gains after Trump says sanctions to be lifted

ISTANBUL (Reuters) - Turkey’s lira extended its gains on Wednesday after U.S. President Donald Trump announced a lifting of sanctions on Ankara following its decision to end its offensive in northeast Syria.

FILE PHOTO: A merchant counts Turkish lira banknotes at the Grand Bazaar in Istanbul, Turkey, March 29, 2019. REUTERS/Murad Sezer

The currency has firmed in recent days as the threat of further U.S. sanctions waned after Ankara’s agreement to pause its operation in Syria against the Syrian Kurdish YPG militia.

Shortly before that pause expired late on Tuesday, President Tayyip Erdogan and Russian President Vladimir Putin announced a new accord that envisages the complete pullout of Syrian Kurdish fighters from the Turkey-Syria border area.

The United States had imposed sanctions on Turkish officials, hiked tariffs on steel and halted trade talks in an effort to persuade Ankara to halt its cross-border military campaign targeting the Kurdish YPG fighters in Syria.

The lira TRYTOM=D3 stood at 5.7355 against the U.S. currency at 1704 GMT, firming some 1.3% from a close of 5.8100 on Tuesday and outperforming other emerging market peers. Earlier, it firmed as much as 5.7260, its strongest since Oct. 7.

The main share index .XU100 was up 1.94% at Wednesday's close, while the main banking index .XBANK rose 2.27%.

Trump said on Wednesday that Turkey has said it was halting combat and making the ceasefire in northern Syria permanent, prompting the United States to lift the recent sanctions.

“The sanctions will be lifted unless something happens that we are not happy with,” Trump said in a special address from the White House in which he also cast scepticism about the meaning of “permanent” in “that part of the world”.

Shortly afterwards, the U.S. Treasury said sanctions on Turkey’s defense and energy ministries as well as its defense, energy and interior ministers had been lifted.

The lira had strengthened earlier in the day on news of the agreement between Ankara and Moscow.

Piotr Matys, emerging markets forex strategist at Rabobank, said the lira recovered after the agreement with Russia, increasing the likelihood that the central bank would cut interest rates at its meeting on Thursday.

“In our view it would be prudent to pause the easing cycle and wait until the dust over Syria fully settles,” he said. “Why take the risk by cutting rates further and making the lira less attractive for carry trade players?”

Turkish government dollar bonds also surged to their most in nine months on Wednesday after Trump’s announcement.

The 2045 issue US900123CG37=TE jumped 2.4 cents to 94.1 cents in the dollar, its biggest daily gain since mid January, while the 2041 issue US900123BJ84=TE added 2.4 cents to 89.2 cents in the dollar, also its best daily gain since mid January, Tradeweb data showed.

Majority state-owned Halkbank’s (HALKB.IS) 2021 issue TR118807308= added 1.5 cents to reach 92.5 cents in the dollar, according to Refinitiv data

Separately, the consumer confidence index rose to 57.0 points in October from 55.8 points in September, data from the Turkish Statistical Institute showed, remaining near its lowest on record since the data was first published in 2004.

Reporting by Ezgi Erkoyun and Ali Kucukgocmen; Additional reporting by Tom Arnold in London; Editing by Daren Butler, Gareth Jones and Alexandra Hudson

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