Turkey’s currency may have rebounded slightly since its recent crash, but that’s hardly a reason for celebration. According to reports published by CNBC, the country’s economic confidence has plummeted to its lowest level in nearly ten years, putting more pressure on the lira and prompting traders to worry whether the worst is yet to come. According to the report, one measure of economic confidence for August fell to 83.9, down from 92.2 in July, which sent the lira to 6.4 against the dollar, a 3 percent drop. This low confidence level hasn’t been seen since March 2009.
Turkey has a lot of debt which is priced in dollars, and the country’s political discord with the United States is weakening the lira further and making the debt more expensive. The U.S. has recently increased tariffs on Turkish steel and aluminum. Turkey responded by increasing tariffs on American cars, alcohol and tobacco.
Turkey’s new minister of finance is Berat Albayrak, Turkish President Recep Erdogan’s son-in-law. Erdogan has already been criticized for his tight control over the country’s monetary policy and his unorthodox monetary policies. On Wednesday Albayrak was quoted by a local newspaper as saying that there is no “big risk” to Turkey’s economy because the country has strong fundamentals. His statements followed a decision late Tuesday by rating agency Moody’s to downgrade its assessment on 18 Turkish banks and two of the country’s financial companies. The downgrade was prompted largely by the country’s high reliance on foreign currency funding.
The lira’s fresh struggles have brought new problems for emerging market currencies. On Wednesday Argentina’s peso was the biggest loser after it plummeted 7 percent. Emerging market indexes and exchange traded funds were also trading lower on Wednesday and Thursday morning.