Turkey's lira slipped on Friday after U.S. lawmakers included mandatory Turkish sanctions in a defence spending bill that moves Washington a step closer to punishing its NATO ally for buying Russian S-400 missile defences last year.
The final version of the $740 billion annual U.S. defence spending legislation would oblige the White House to select from a list of sanctions over the S-400s, which Washington says are incompatible with NATO operations.
U.S. President Donald Trump, who is set to step down next month, has said he will veto the bill over separate provisions. But he will need support in Congress and it would be the first such veto in nearly 60 years.
Russia delivered the S-400 ground-to-air systems last year and Turkey has tested them as recently as October. Ankara says they would not be integrated into NATO systems and pose no threat, and it has called for a joint working group.
The threat of Western sanctions has weighed on the lira currency, which hit a series of record lows this year and was down 0.4% at 7.808 versus the dollar at 0728 GMT.
Sanctions could harm a Turkish economy already struggling with a coronavirus-induced slowdown, double-digit inflation and badly depleted foreign reserves.
BIDEN TO BE TOUGHER?
- Israel warns Iran may attack Israeli targets abroad
- In parting shot, Pompeo rebukes Turkey at NATO meeting
- U.S. Congress defense bill sanctions Turkey, Russia, sets up showdown with Trump
President-elect Joe Biden is expected to be tougher on Turkey than Trump, who had warm ties with President Tayyip Erdogan despite growing hostility among U.S. lawmakers towards Turkey's more aggressive foreign policy.
The defence bill includes sanctions under the Countering America's Adversaries Through Sanctions Act (CAATSA), which are designed in part to deter cooperation with Russia. The U.S. president would select from a list of mild to harsh possible sanctions.
"If Trump chooses from among the lighter sanctions I think given the global risk appetite we still can see a benign performance in the lira," said one Turkish trader.
The bill is the result of months of negotiations between House and Senate Republicans and Democrats. Committee staff said it would be difficult to override a Trump veto with Congress in session only until year-end.
Last year, Washington suspended Turkey from its F-35 jet programme over the S-400s.