Turkish Lira Fell more than 14.5% in Early Trading

Turkish financial markets experienced severe turmoil on Wednesday after authorities arrested Ekrem İmamoğlu, the mayor of Istanbul and one of President Recep Tayyip Erdoğan's most prominent political rivals, on charges of corruption and association with a terrorist group.

The Turkish lira fell more than 14.5% in early trading before paring its losses to 7.4%, trading at 39.40 lira to the dollar.

Also, dollar bonds due in 2045 fell 1.6 cents to 85.078 cents, their biggest daily drop since early 2024.

Major Turkish stocks fell around 6%, their worst daily performance since late 2023.

Wolfgano Piccoli, co-president and director of research at Teneo in London, commented on the developments, saying: “We must wait and see if Turkey is moving toward a political environment more like Russia, where democracy and elections are under increasing pressure. This is not just an attack on the political opposition, but also on the major economic groups that play a pivotal role in the Turkish economy.”

Frantisek Taborski, currency and fixed income strategist at ING in London, confirmed that Imamoglu's arrest is putting significant pressure on Turkish bonds and the exchange rate, adding: "The Turkish lira is currently the most widely used currency to take advantage of interest differentials in emerging markets, and any sharp movements could lead to further capital outflows. However, local banks may intervene to provide some support to the currency."

The effects of the Turkish crisis were not limited to local markets. Jane Foley, head of currency strategy at Rabobank in London, explained that the unrest in Turkey had an impact on global currency markets, saying: “The news coming out of Turkey has impacted major currencies and risk markets, but this impact is likely to fade gradually once markets better absorb developments.”

She added that Turkey’s strategic location makes it of particular interest to European markets, noting that there is speculation that Türkiye may attempt to play a greater role in international politics amid the fluctuations in US-NATO relations.