Turkish currency bucks Thursday’s trend by weakening to 5.86 to the dollar before recovering

The FTSE 100 index in London has opened flat, trading down 2.5 points at 7553.84. Germany’s Dax is also flat, France’s CAC is up 0.1%, Spain’s Ibex has gained 0.2% and Italy’s FTSE MiB has slipped 0.1%.

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Viraj Patel, foreign exchange strategist at ING, expects the lira to “tread water” today – with US-Turkey relations on a knife-edge as the White House said it may increase sanctions. Next week’s market holiday should offer some respite – the Istanbul stock exchange will be closed from Tuesday until Friday for Eid al-Adha.

Patel adds:

All the noise from Turkey’s finance minister Albayrak appeared to be on the right lines in terms of reassuring global investors that Ankara remains credibly committed to addressing the country’s inflation problem – and in the status quo free-market spirit. In effect, Turkish policymakers have bought themselves a bit of time – at least until early September, when markets will be expecting to see some sort of joint fiscal and monetary tightening in the Medium-Term Economic Plan.

While we did see Turkey’s sovereign CDS rally following the finance minister’s investor call, the lira failed to push on much further beyond 5.75 – as markets had largely priced in a conciliatory outcome. S&P are due to downgrade Turkey’s sovereign credit rating today – but again this is in the price of the currency.

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Read More Turkish lira volatile as US warns of more sanctions – business live

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