Turkish lira hits record low on geopolitical worries

ISTANBUL (Reuters) - The Turkish lira weakened to a record low against the dollar on Thursday as concerns over possible U.S. sanctions, the Caucasus conflict and uneasy ties with the European Union weighed on sentiment.

FILE PHOTO: Turkish lira banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

The lira TRYTOM=D3 touched a low of 7.8930 against the U.S. currency, weakening from a close of 7.8815 on Wednesday.

It has lost nearly 25% of its value this year, largely because of worries over the central bank’s depleted forex reserves and costly interventions in the currency market. Geopolitical worries have also come to the fore.

A Republican and a Democratic U.S. senator called on Wednesday for President Donald Trump’s administration to impose sanctions on Turkey over its purchase of Russia’s S-400 anti-aircraft system, after a report Turkey may be planning a comprehensive test.

Investors, meanwhile, were closely monitoring financial data after the Treasury cash balance late on Wednesday showed a deficit of 30.82 billion lira ($3.9 billion) in September.

“The data shows that the Treasury’s borrowing needs remain high,” said a treasury desk trader at one bank, pointing to a Eurobond issue and gold-backed debt issues this week.

“Domestically, we will follow the central bank reserves data. The evident decline in reserves continues to be the most important source of concern for the lira,” the trader said.

The central bank releases its reserves data at 1130 GMT.

Ankara’s backing for Azerbaijan in a conflict with Armenian forces in Nagorno-Karabakh has caused unease. France, the United States and Russia will step up efforts to end fighting with talks in Geneva on Thursday.

Tensions with the European Union have also flared. Ankara voiced disappointment over the outcome of an EU summit last week over disputes including maritime claims in the eastern Mediterranean.

Potentially adding to those strains, Northern Cyprus was set to open the beach area of a Cypriot resort abandoned since the 1974 invasion by Turkey - a move which has been condemned by the Greek Cypriot government on the divided island.

Additional reporting by Nevzat Devranoglu; Writing by Daren Butler; Editing by Ece Toksabay and Barbara Lewis