Not for others! Considered the luckiest number of all in China, the number 8 is a forbearance of prosperity and fortune. It’s pronunciation, ‘Ba’ is similar in sound to a word pronounced ‘Fa’, meaning to make a fortune. The belief in the good luck that the number 8 will bring is so deep routed that number plates in China containing arrangements of this number routinely exchange hands for sums of money in the millions of Dollars. In Turkey, however, I suspect the association with the number 8 has turned increasingly sour this week. At market open yesterday, continued tensions surrounding Turkey pushed the Lira past 8.0 to the Dollar for the first time ever.
In just one year the value of the Lira has moved from <6 to the Dollar to in excess of 8 today. 5 years ago you would have needed less than three lira to comfortably purchase a US Dollar. However, the political economy of President Recep Erdogan has allowed the currency to erode significantly. The most recent rise in tensions that has pushed the Lira through the psychological level has been a butt of heads between the Mr. Erdogan and other European officials. Comments from Turkey’s authoritarian leader that French President Macron needed mental treatment following comments about Paris’ recent terror incident prompted the recall of the French ambassador to Ankara. As tensions continued to rise during yesterday’s trade the Lira’s slide did not abate with the currency losing a further 1.5% throughout the day.
The Turkish President also encouraged citizens to boycott French goods. The rising tension between Turkey and France could have greater implications that we might suspect at face value. The European Union, in its multi-annual financial framework, provides for billions of Euros over only a handful of years in direct assistance to Turkey. The reason for this bilateral aid is to ‘assist Turkey in dealing with’ its challenge of hosting over 4 million refugees. Rising tension between Turkey and its European neighbours could therefore disturb the fragile solution of subsidy in return for maintaining the border between Turkey and the Union. If this arrangement were destabilised the ramifications for development in Turkey and the migration crisis in Europe could be disastrous. Pushing his luck even further, Mr. Erdogan also wielded the cattle prod towards the US, daring them to deliver on threats of further sanctions for the nation’s role in the conflict between Azerbaijan and Armenia.
Despite introducing punitive measures to undermine the short-selling of the Lira as we wrote about recently, the currency pushed through the level comfortably yesterday. Against a backdrop of negative interest rates in real terms, there is little to entice anyone to hold a positive exposure to the Lira exaggerating its vulnerability.
Discussion and Analysis by Charles Porter