Turkish lira weakens slightly after US unveils sanctions

ISTANBUL: Turkey's lira weakened 0.2% against the dollar on Tuesday as investors weighed the impact of US sanctions over Turkey's purchase of Russian S-400 defences that further complicated the relationship between the NATO allies.

The lira stood at 7.87 by 0454 GMT, from a close of 7.855. It firmed below 7.83 late on Monday after the US move as analysts judged the measures, narrowly targeting Turkey's top defence development body, could have been worse.

"The initial-muted Turkish market response reflects the limited scope of the CAATSA sanctions," said Blaise Antin, head of emerging market sovereign research at TCW. "The menu of sanctions options available to the US Administration included a number of potentially much more impactful penalties, which remain in the American toolbox."

Turkey condemned the sanctions as a "grave mistake" and urged Washington to revise its "unjust decision." It said sanctions would inevitably harm mutual relations and threatened unspecified retaliatory steps.

The sanctions, first reported by Reuters last week, target Turkey's top defence procurement and development body Presidency of Defence Industries (SSB), its chairman Ismail Demir and three other employees.

The measures, which received a bipartisan welcome from the US Congress, were announced under the Countering America's Adversaries Through Sanctions Act (CAATSA) - the first time the act has been used against a fellow member of the NATO alliance.

Antin said markets will be monitoring closely potential changes in US-Turkey relations under President-elect Joe Biden, who is seen as having a much more traditional foreign policy approach than President Trump.

The lira touched a record low of 8.58 against the dollar last month and is 24% weaker than its close at the end of last year.