Turkish lira firms after Trump-Erdogan phone call

ANKARA (Reuters) - Turkey’s lira firmed nearly 1% on Thursday on expectations that ties with Washington will improve after the two presidents discussed Ankara’s purchase of Russian S-400 missile defense systems during a call.

FILE PHOTO: A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul, Turkey August 2, 2018. REUTERS/Murad Sezer/File Photo

The lira was down as much as 14% this year due in part to growing friction between the NATO allies and the risk that delivery of the Russian-made surface-to-air weapon would trigger U.S. sanctions. Washington says the S-400s would compromise its F-35 fighter jets.

During Wednesday’s call, Turkish President Tayyip Erdogan reiterated to U.S. President Donald Trump a proposal to set up a working group to assess the impact of the S-400s. The two also agreed to meet on the sidelines of a G-20 summit in Japan at the end of June.

The lira stood at 5.9650 at 0838 GMT, firming nearly 0.85% from Wednesday’s close of 6.0155. Earlier, it firmed as much as 5.9625, its strongest in more than two weeks.

Turkey’s dollar-denominated sovereign bonds also surged, with the 2030 issue up 0.9 cents on the dollar, its most in two weeks, according to Tradeweb data. The 2045 issue climbed 0.7 cents.

The call between the leaders sparked hopes that there may be a deal regarding the missile defense system and remove the threat of sanctions on Turkey, said Jason Tuvey, senior emerging markets economist at Capital Economics.

“The default remains that Turkey will take delivery of the S-400s from Russia. So, investors will need to see some further steps over the coming weeks to feel more confident that tensions are de-escalating,” he said.

The lira also firmed earlier this week after Defence Minister Hulusi Akar’s comments that the system may not make in time for the scheduled delivery in June sparked optimism among investors, despite his saying that they will be delivered in coming months.

Separately, the central bank’s net reserves stood at $26.52 billion as of May 24, data showed on Thursday, rising from $24.88 billion a week earlier.

Turkey’s main share index BIST100 rose 2.02%, while the main banking index was up 3.1%.

Reporting by Ali Kucukgocmen; Additional reporting by Tom Arnold in London; Editing by Jonathan Spicer