A Tantrum in Turkey

USD/TRY blow-ups and political headaches.

This week, amidst the latest Fed meeting, partial U.S. equity market relief and lack of controversy from President Trump, you could have been forgiven for missing what has happened in Turkey.

Yet, in reality, it’s a story that warrants attention, partly out of interest for bystanders and partly to check in with any counterparties that may have been caught on the wrong side of USD/TRY.

Here’s the lowdown to end a crazy week.

Istanbul Mayor İmamoğlu Detained

For those not up to speed, Ekrem İmamoğlu is Istanbul’s mayor and a leading opposition figure to President Erdogan. He was set on Sunday to be named the presidential candidate for the Republican People’s Party.

On Tuesday, Istanbul University annulled İmamoğlu’s degree, citing irregularities. This might not seem like a big deal, but this decision effectively barred him from running for president, as a university degree is a prerequisite for candidacy.

Critics viewed this move as a strategic effort to sideline a formidable political opponent ahead of the 2028 presidential election.

In the early hours of Wednesday, Turkish police surrounded İmamoğlu’s residence in Istanbul. On his way out, İmamoğlu addressed the public, saying, “We are facing great oppression, but I will not give up. I entrust myself to my nation.”

Shortly thereafter, he was detained alongside over 100 individuals, including his aide Murat Ongun, two Istanbul district mayors from the Republican People’s Party, journalists, and business figures.

The exact charges being thrown around are that of corruption, financial misconduct and terrorism. However, it doesn’t take a genius to see that these charges are politically motivated, aiming to eliminate İmamoğlu as a potential challenger to President Erdogan in future elections.

Needless to say, this didn’t go down well with the general public. The Turkish government imposed a four-day ban on public demonstrations in Istanbul, closed major roads, and restricted access to social media platforms such as Twitter, YouTube, and Instagram. These measures were reportedly taken to maintain public order amidst rising tensions, but again, they are seen by many as ways to restrict freedom of speech. Below is one of the demonstrations that occurred on Wednesday:

Initial Market Reaction

In short, the market reaction was not good. As a barometer, we look at USD/TRY, overnight funding rates and the main domestic stock market index.

USD/TRY

In the spot market, USD/TRY popped 11.5% higher on Wednesday, and even though it has retraced some of those losses, you can see a risk premium built in with it trading around the 38 handle:

Reports we’ve read detail that Turkish lenders sold around $8bn until midday on Wednesday to support the Lira, indicating that the spike we saw was somewhat of a cushioned move, which makes it even more incredible.

BIST 100

In the equity space, the main index triggered a trading halt after it dropped almost 7% on open:

ON / Short Term Funding