ISTANBUL: Turkey's lira weakened nearly 1pc on Thursday on concerns over a deterioration in ties with the United States due to Ankara's deal with Russia to buy S-400 missile defence systems.
Softer economic data also weighed as the lira stood at 6.1425 against the dollar at 0808 GMT, shedding some 0.8pc from Wednesday's close of 6.0945. Earlier, it weakened as far as 6.1510.
Defence Minister Hulusi Akar on Tuesday said Turkey was preparing for potential US sanctions over its purchase of the S-400s, even while he said there was some improvement in talks with the United States over buying F-35 fighter jets.
There are "fresh concerns over the escalation of tension between Turkey and the United States," said Jason Tuvey, senior emerging market economist at Capital Economics. "Investors are getting increasingly concerned that this (sanctions) could be how it plays out."
Ties with Washington neared a breaking point last year over the trial in Turkey of an evangelical pastor. The pastor was returned to the United States in October, but the currency had already spiraled into a crisis that tipped Turkey's economy into recession.
The lira is down 38pc since 2017, and has undergone a new bout of selling in the last two months in part due to US ties, a trend of Turks stockpiling foreign currencies, and uncertainty over local election results.
Economists have also expressed concerns about the central bank's ability to defend the lira in the case of another sharp decline given its reserves have fallen in recent months.
The central bank's net international reserves stood at $24.9 billion as of May 17, data showed on Wednesday, down some $1.8 billion from a week earlier.
Several indicators also deteriorated in May, signaling a downturn in economic activity as Istanbul mayoral elections were annulled and rescheduled for June 23. Economists have warned that this could divert attention from longer-term reforms and lead to more public spending.
Consumer confidence fell to its lowest on record, data showed on Tuesday.
The manufacturing confidence index, which indicated pessimism when below 100, fell to 98.9 points from 105.5 points in April, data showed.
The capacity utilisation rate, a measure of how much of the economy's potential output is used, rose to 76.3pc from 75pc.
Turkey's dollar bonds also weakened across the curve with the 2030 issue losing 1.4 cents in the dollar, according to Tradeweb data.