Turkey’s lira hit its strongest levels against the dollar in a month prior to a meeting on Monday between U.S. President Joe Biden and Turkish President Recep Tayyip Erdoğan.
The lira touched 8.274 per dollar, leading gains for emerging market currencies. It was trading up 0.5 percent at 8.376 at 1:06 p.m. local time in Istanbul.
Investors in Turkey are hoping that Erdoğan will agree to hand back air defence missiles bought from Russia or agree on a roadmap to mothball the weapons at the talks with Biden at a NATO meeting in Brussels.
“The market is certainly building up expectations for a Biden-Erdoğan summit breakthrough,” said Tim Ash, senior emerging markets strategist at Blue Bay Asset Management in London. “The danger is that if it does not happen, this could turn ugly quite quickly the other way.”
Turkey’s acquisition of the missiles in 2019 has become a focal point of discord between the two governments, prompting the United States to suspend Turkey from a programme to purchase F-35 stealth fighter jets and sanction its defence procurement agency. Ankara and Washington also have serious differences over policy towards Syria, Libya and the eastern Mediterranean.
The lira was also heading for its biggest weekly rally in almost three months. Turkish bond prices were in the longest streak of gains since November.
Turkey has sought to talk up the prospects of a positive meeting between Biden and Erdoğan, mindful of the positive impact better bilateral relations could have on sentiment towards its fragile economy. The lira dropped to a record low of 8.88 per dollar at the start of this month. Turkey entered a currency crisis and recession in 2018 when former President Donald Trump imposed economic sanctions for its detention of a U.S. pastor on terrorism charges.
Ankara is approaching the talks “with a positive agenda” and is getting the same messages from Washington, Foreign Minister Mevlüt Çavusoğlu told the state-run TRT television in an interview on Wednesday. White House press secretary Jen Psaki was more cautious at the start of a trip by Biden to the United Kingdom this week.
“There are areas where we feel it’s important to continue to constructively work together where there’s opportunity, and also areas where we have strong disagreement,” she said on Wednesday. The talks were “a priority bilateral meeting” for Biden’s first overseas visit, she said.
Losses for the lira have been sparked by an exodus of foreign investment, a gaping current account deficit and dollarisation by concerned locals. The currency’s weakness has helped drive inflation well into double figures. It stood at 16.6 percent in May.