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Turkish lira was the worst performing currency in October due to the risk of sanctions

TURKEY (OBSERVATORY NEWS) — The Turkish lira plunged in the wake of Turkey’s military incursion into Syria, the worst performer among major currencies in the world in October, in a move that looks darker given the rise of most emerging market currencies.

Volatility is not unusual for the lira, but it lost 5 percent this month against the dollar in an extraordinary move to coincide with the MSCI Emerging Markets’ 1.3 percent rise.

The rise in emerging markets has generally been supported by signs that a trade agreement between the United States and China is nearing and stimulus measures, but Turkish observers have expressed concern about the threat of international sanctions against Turkey for its moves in Syria.

US President Donald Trump has warned of “significant sanctions on the way to Turkey” after he has already threatened to “wipe out” its economy if Ankara’s attack on Kurdish-led forces in Syria goes too far.

European governments also agreed on Monday to reduce arms exports to Turkey, but without declaring a formal EU embargo on the country, which has helped stem the flow of refugees from Syria and other countries.

“I find it difficult to see any event that serves as a positive catalyst (for Turkey) at the moment,” said Richard House, an emerging markets expert at Alliance Global Investors.

JP Morgan ranked the lira, along with the Russian ruble, as the most exposed currency on political volatility. Goldman Sachs warned about geopolitical risks and domestic economic policy, while Rabo Bank last week questioned whether the lira was on the verge of a new “currency crisis”.

Deutsche Bank has downgraded its “positive” outlook for Turkish fixed income instruments and Oxford Economics has cut its outlook for Turkey.

“If the US Congress decides to impose sanctions on Turkey, this relatively small move (in lira) will probably be just the beginning,” said Rabot Bank’s Piotr Mathis.

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