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A Reported Coup in Turkey Sends Lira Tumbling, Threatens Global Volatility

A Reported Coup in Turkey Sends Lira Tumbling, Threatens Global Volatility

John Kicklighter,

Talking Points

  • Reports of a military coup in Turkey to overthrow the government started around 20:00 GMT
  • The Turkish Lira dropped over 5 percent versus the USD shortly after the news
  • Details were slow to be released as the military reportedly took control of state media

See how retail traders are positioning in GBP/USD, the European currencies, majors and broader markets using SSI readings on DailyFX's sentiment page.

During an otherwise quiet close to the week, social media and the markets received a jolt on news that a military coup was underway in Turkey. It has been 19 years since the last military intervention, and this event is being met with the level of astonishment that such a duration would insinuate.

Details were slow to come out of the country, but supposed official statements were quoted in the media from the government and the military. According to the Prime Minister Banali Yildirim, the government was still in control and they intended to resist the overthrow. Accounts of controversial President Recep Tayyip Erdogan’s whereabouts were mixed, but the leader was reportedly free with his guard.

An emailed statement from the military (some reports suggest it was unauthorized) said that it had seized control of the country to restore freedom and democracy. It said that all international agreements will be upheld. Reports suggest the military has taken over state media and a curfew has been announced with martial law in place amid a large military presence throughout the capital.

The reaction from the Turkish Lira was immediate and sharp. Versus the Euro, the currency collapsed 4.9 percent. The preferred liquidity haven US Dollar managed a 6 percent climb versus the TRY at its peak, though its settled the session close at 4.7 percent.

For historical context, this is the biggest single-day USD/TRY rally since the height of the Great Financial Crisis back in 2008 – and it would come in the twilight of liquidity for the week. The drain from liquidity makes it particularly difficult for the market to properly adjust for the fluidity of the situation and the full extent of the risk.

With the limited time to react, assets with distinct safe haven and risk appetite proclivities reacted sharply to the news. The USD/JPY dropped over 100 pips (1.0 percent). Gold rose approximately $13 to 1,338 (1.0 percent) before the session closed. International markets will have to assess the risk spillover come the open of Asian markets Monday morning.

What makes the markets particularly exposed in current conditions is the level of complacency across global markets. The retreat in fear and rebound in capital markets post-Brexit has further bolstered investors confidence against tumultuous seas. This can promote thin liquidity and make the markets particularly exposed with reticence to respond to permanent shifts in sentiment.

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