ISTANBUL – The Turkish lira gained on Tuesday after Washington imposed lighter-than-expected sanctions for Turkey’s military incursion into Syria, providing some relief even while traders worried that heavier repercussions would follow.
Nine days after he began pulling U.S. troops out of northeastern Syria, U.S. President Donald Trump imposed sanctions on Turkish government ministries and officials and demanded the NATO ally halt its attacks.
But after a week under pressure, Turkish stocks and bonds rallied, as investors noted the sanctions did not extend to Turkey’s banks or to broader U.S.-dollar financing and markets.
The relief was limited, however. German carmaker Volkswagen said it was postponing a final decision on whether to build a plant in Turkey, citing concern at “current developments” after international condemnation of Turkey’s incursion.
In early trade, the lira TRYTOM=D3 rallied as much as 0.7% before handing back most of those gains. It stood at 5.9000 at 1019 GMT, up 0.4% from a close of 5.9270 on Monday, when it tumbled on the prospect of a harsher U.S. punishment.
“The sanctions are not related to banking, so the markets will have a positive perception and we can see some movement in the opposite direction from yesterday,” said Cem Tozge, an asset management director at Ata Invest.
Still, the increasingly tense U.S.-Turkish ties would continue to cloud sentiment, he said. “The pressure will ease a bit, but the military operation continues, and as long as the international negative news flow continues we cannot expect the lira to appreciate swiftly.”
Turkey’s main stock exchange BIST100.XU100was up 1.3% on Tuesday while sovereign dollar bonds, especially longer-dated assets, rallied. The costs of insuring sovereign debt also fell.