The lira, once the currency of the mighty Ottoman Empire, has more recently reflected the woes of the more modest political unit in which it now circulates, Turkey.
Two self-reinforcing negative factors have rocked Turkey’s economy in recent months, and the lira has taken a battering.
On one side, Turkey is in dispute with President Donald Trump over the detention of American pastor Andrew Brunson, with both countries slapping tariffs on imports of the other’s steel and aluminium.
August was the low point
Separately, there are fears that Turkey will find it difficult to repay the foreign-currency debt built up during boom economic conditions.
The tariff battle has weakened the lira, which, in turn, stokes anxiety about the affordability of the debt, given each lira will repay less of the total owed.
However, the currency is currently off its lows of the past year.
Against the, the lira stood at $0.26 on 30 January 2018, hitting a low of $0.15 on 12 August as the tariff dispute worsened. It is currently trading at $0.19.
Itsstood at €0.21 on 30 January 2018, reaching a low for the year of €0.13 on 13 August. It is now trading at €0.16.
In, the lira traded at £0.19 on 31 January 2018, with a low for the year of £0.11 on 13 August. It is now worth £0.14.
While the affair has poisoned relations between the US and Turkey – traditionally staunch allies in the North Atlantic Treaty Organisation – the tariff moves were justified by the White House on the basis that devaluation of the lira gave Turkish exports an unfair advantage.
Signs of overheating
On 10 August, President Trump tweeted: “I have just authorised a doubling of tariffs on steel and aluminium with respect to Turkey as their currency, the Turkish lira, slides rapidly downward against our very strong dollar,” the president wrote.
He added: “Aluminium [tariffs] will now be 20% and steel 50%.”
Shortly afterwards, Turkey retaliated, slapping tariffs on a range of American imports including rice, nuts, cosmetics, cars and alcohol.
The IMF warned that monetary policy appears too loose “and its credibility is low”.
Turkey’s inflation rate was running at 20.30% in the year to December and the base interest rate is 24%.