Political risk continues to weigh on the Turkish Lira

The Turkish Lira has come under fresh pressure in recent days as political risk continues to weigh. The Lira has significantly underperformed against peers such as the rand. TRY/ZAR has slumped to multi-month lows at 5.1866.

Turkey's escalating conflict with Russia is a major cause, but that has been gradually digested by the market. The dissolution of the Constitutional conciliation commission after main Opposition party (CHP) quit the working group is a more abrupt development. While the Turkish PM has appealed to the speaker of the parliament to reconvene the group, there are less chances that a compromise can be reached.

"AKP will now probably try to launch a referendum on an executive presidency system, and if it cannot get the necessary support, we could face early elections yet again, although this is not our baseline scenario at the moment." said Commerzbank in a report.