Geopolitical Shock Sends Dollar Above 39.70: The Turkish lira took another hit this morning as the dollar rose above 39.70, driven by escalating geopolitical tensions. Over the weekend, the United States joined Israel in launching airstrikes on Iran, targeting three nuclear facilities using bunker-busting bombs and guided missiles. This triggered a sharp market reaction early Monday.
As Iran and Israel continue to exchange airstrikes, markets are watching closely to see how Iran will respond directly to the U.S., adding more uncertainty to an already volatile situation.
All Eyes on the Strait of Hormuz
The Strait of Hormuz is now in sharp focus. With a quarter of the world’s oil and a fifth of its liquefied natural gas flowing through this narrow 33-kilometer-wide passage, any threat to its stability could shake global energy markets.
Goldman Sachs has warned that if the Strait is closed for just one month, oil prices could temporarily spike to 110 dollars per barrel. That possibility has investors on edge and is affecting emerging market currencies like the lira.
Turkey’s Central Bank Tries to Steady the Ship
In response to mounting pressure on the lira, the Turkish Central Bank (TCMB) announced new macroprudential measures over the weekend aimed at increasing the share of Turkish lira deposits.
These include:
- Higher TL deposit ratio targets for banks with less than 60 percent TL deposit share
- A monthly 0.4 percentage point increase requirement for banks with a 60 to 65 percent share
- Permission to open long-term TL deposits with floating interest rates
The bank had already taken liquidity steps earlier this month, reducing overnight funding rates from 49 to 46 percent. Although it kept the policy rate steady last week, the broader market now expects the first rate cut to happen in July.
Lira Down 11 Percent Since January
As of this morning’s opening rate of 39.73, the Turkish lira has lost 11 percent of its value since the beginning of the year. After a steep drop in March, the currency had stabilized for a while, but recent geopolitical risks have led to another 1.3 percent decline since early June.
What’s Next on the Agenda
Locally, markets will be watching today’s release of May’s foreign visitor statistics, as tourism is a key source of foreign currency inflows for Turkey. Political attention is also turning to President Erdoğan, who is expected to chair a ruling party MKYK meeting later today.
