Turkish lira weakens over Washington ties, upcoming central bank decision

ISTANBUL: Turkey's lira weakened on Wednesday over investor worries regarding ties between Ankara and Washington and risk aversion in the market ahead of next week's central bank rate decision.

The lira lost nearly 30 percent of its value against the dollar last year in a sell-off sparked by worries over the central bank's ability to adequately respond to a rise in inflation facing pressure from President Tayyip Erdogan to lower interest rates.

Inflation has partially eased since topping 25 percent in October but remains just above 20 percent. The decrease in the rate has sparked worries among investors that the central bank will lower rates sooner than expected.

"The move just may be a re-pricing of the tensions between U.S. and Turkey because over the past weeks everybody was relieved that Turkey and U.S. relations were going fine," said Guillaume Tresca, senior emerging markets strategist at Credit Agricole.

"You should continue to see some TRY underperformance until the next central bank decision," he said. "It is very hard to take risks ahead of this type of meeting."

The central bank, whose policy rate stands at 24 percent, is expected to announce its rate decision at 1100 GMT on Jan. 16.

The lira stood at 5.51 to the dollar at 1417 GMT, slightly weaker than Tuesday's close of 5.4775. It weakened as much as 5.5450 earlier and is down nearly four percent this year.

The lira has also been hit by strained ties between Ankara and Washington, which sent the currency down more than 47 percent in August, at the height of the sell-off.

After signs of improvement in ties between the NATO allies in recent months, investor concerns were revived this week after a possible souring of relations following talks over the U.S. withdrawal from Syria.

U.S. National Security Adviser John Bolton and his Turkish counterpart discussed the U.S. troop pull-out on Tuesday but earlier comments by Bolton about the Syrian Kurdish YPG militia prompted a sharp rebuke from President Tayyip Erdogan.

Bolton had said that no U.S. withdrawal would take place until Turkey guaranteed the Kurdish fighters would be safe, a comment Erdogan described as a serious mistake.