The Turkish lira held its gains on Tuesday after Washington imposed light, targeted sanctions on Ankara over its purchase of the S-400 air defense system.
Sanctions targeting Defense Industries Presidency (SSB) Chairperson Ismail Demir and several other defense officials were placed on Turkey on Monday for its purchase of the Russian S-400 missile defense system. Ankara says the sanctions have no legal basis and contradict the alliance with Turkey.
The sanction remarks had weighed on the currency for months but when they were disclosed on Monday, had no effect on the lira since they target only the top defense development body, not the broader economy.
The lira strengthened to 7.844 versus the dollar at 8:20 a.m. GMT, retaining gains from a 1% rally late on Monday after the U.S. announcement.
Reflecting relief across Turkish markets, shares of state-run Turkish lender Halkbank jumped 5%.
The so-called U.S. Countering America's Adversaries Through Sanctions Act (CAATSA) sanctions – the first to target a NATO ally – apply to the SSB chairperson and three other employees, namely Mustafa Alper Deniz, Serhat Gençoğlu and Faruk Yiğit.
They could block joint projects or technology transfers to companies linked to the SSB, and restrict U.S. loans and credits.
Ties between NATO allies Turkey and the United States were badly strained last year over Ankara's acquisition of the advanced S-400 Russian air defense system, prompting Washington to remove Turkey from its F-35 Lightning II jet program.
The U.S. argued that the system could be used by Russia to covertly obtain classified details on the Lockheed Martin F-35 jets and is incompatible with NATO systems. Turkey, however, insists that the S-400 would not be integrated into NATO systems and would not pose a threat to the alliance.
Previous talks between Turkey and the U.S. on the purchase of Patriots collapsed over a host of issues, from the S-400s to Ankara's dissatisfaction with Washington's terms. Turkey has said it will only agree to an offer if it includes a technology transfer and joint production terms. Ankara has repeatedly stressed it was the U.S.' refusal to sell Patriots that led it to seek other sellers, adding that Russia had offered a better deal, including technology transfers.
