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Analysts at Danske Bank note that Turkey was downgraded by major rating agencies late on Friday as Moody’s downgraded Turkey to ‘Ba3’ (‘junk’) with negative outlook, while S&P cut Turkey’s sovereign debt rating one notch to ‘B+’ and the long-term local currency rating to ‘BB-‘.

Key Quotes

“S&P expects a recession for Turkey in 2019. According to the agency, ‘over the last two weeks, the Turkish lira has exhibited extreme volatility. This follows Turkey’s prolonged economic overheating, external leveraging and policy drift.’ The Turkish market will be closed during the latter half of this week due to the public holiday Kurban Bayrami (Sacrifice Feast).”

“Trading in the TRY will be thin, but high volatility is likely to stay. The markets will remain in wait-and-see mode as the US could hit Turkey with new sanctions this week or there could be a diplomatic breakthrough with a possible release of the American pastor.”