Turkish Coup Attempt Rattles the FOREX Market

The failure of an attempted coup in Turkey over the weekend made a substantial effort to ameliorate investor concerns about geopolitical risks and political controversy, further driving the Turkish Lira to recover some of the losses it suffered last week Friday when news of a military coup attempt pushed it to drop 5%, military and judiciary officials are being held by the Turkish authorities for planning the failed military coup.

Turkey embarked on large scale suppression against suspected advocates of the failed coup on Sunday, bringing the toll for the total number of people apprehended in the armed forces and judiciary to over 6,000. The government subsequently stressed its control over the country and its economy dissipating all room for uncertainty and moving to assure investors that the economy will not be affected by a failed coup.

The Central Bank then expressed that it would be offering unlimited liquidity to banks, while the Deputy Prime Minister made it clear that the government was in full control and there was “no need to worry”. This has reduced fears of further economic tensions in Europe in light of the recently experienced volatility in the FOREX market due to European economic and political problems.

Many analysts fear that the Turkish currency’s weakness might provoke the rise of inflation and increase the pressure of Turkey’s current account deficit, further endangering inward investment and tourism.

“It is a very serious confidence shock but it also depends on how permanent the depreciation in the currency will prove,” said Murat Ucer, economist at Global Source Partners.

The Turkish tourism sector has previously been weakened by the terrorist attacks which include the 3 suicide bombers who last month attacked the Ataturk airport in Istanbul leaving more than 40 people dead, and Turkey’s conflict with Russia over the destruction of a Russian war plane along the Syrian border which happened last year has also aggravated the problems of this sector.

"The scenario looks a bit calmer now ... so we're back to thinking about the sort of policy outlook that had the yen falling against the dollar last week," said Jeremy Stretch, head of currency strategy at CIBC in London.

The Japanese yen which is popularly referred to as a safe haven currency in times of market stress, to some degree this has been as a result of Japan's low net creditor status. The yen is often more likely to rise in times of market tension but so far the adverse seems to be the case as investors risk appetite seem to be on the rise. The yen was in decline as risk aversion in the market was reduced, the dollar moved to gain 0.4% to 105.35 yen, the euro went up 0.3% at 1.1065 against the dollar, and the euro also gained 0.8% against the yen.

The yen after dropping more than 4 percent against the dollar last week for its worst week since 2009, mostly due to rumours of an impending economic intervention from the Japanese authorities called “helicopter money”, seems to still be in descent.