(Bloomberg) -- The lira rallied after President Donald Trump indicated he may reassess his threats to sanction Turkey if it goes ahead with a Russian missile purchase, fueling speculation that any penalty imposed will be benign.
The currency climbed more than 2% against the dollar to 5.6766 as of 9:25 a.m. in Istanbul, pushing the dollar-lira pair below its 100-day moving average. If it closes below that level, it would be the first time since late March.
“The sanctions will go into effect latest by August, but they will be mild,” GlobalSource Partners including Atilla Yesilada wrote in a note to clients.
Anxiety among investors over the S-400 delivery, which may come as soon as next month, has contributed to the weak performance of Turkish assets this year. In June, people familiar with the matter said the Trump administration was weighing three sanction packages, one of which would all but cripple the already troubled Turkish economy.
Alleviating the threat of sanctions may help ease bearish bets on the currency, especially given the allure of Turkey’s 5.3% real yields. It also helps that investors worldwide are relieved the U.S. and China called time on their trade war, buying up risky assets while the truce lasts.
