Trump’s Sanction Threat May Give Lira Bears License to Go All In

(Bloomberg) -- The lira’s worst week since March may pale in comparison to what could happen when markets reopen on Monday.

Bearishness on the currency -- as measured by one-month risk reversals -- rose by the most since March last week on the prospect of more U.S. sanctions after Turkey started a military operation in Syria. Those bets are likely to soar after President Donald Trump said on Twitter that the U.S. “Treasury is ready to go” if additional sanctions are needed.

His comments came after Treasury Secretary Steven Mnuchin said Washington could shut down all dollar business with Turkey.

The threat gives credence to investors’ worst fears for the currency. Last year, the U.S. sanctioned key Turkish officials because of a dispute over a detained American pastor, fueling a currency crisis that dragged the Turkish economy into its first recession in a decade and sent the lira tumbling by the most since 2001.

Bearishness on the lira is more than double its nearest contender, the South African rand. The currency fell more than 3% last week against the dollar to 5.8833 and almost 4% versus the euro.

©2019 Bloomberg L.P.