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Data: Money.net; Chart: Axios Visuals

The Turkish lira strengthened against the dollar on Thursday after Turkey agreed to pause its offensive in Syria for 5 days to let Kurdish forces withdraw from a “safe zone" Turkey has established.

The big picture: Neither the ceasefire nor the bullish run that Turkey's bonds and currency have seen recently is sustainable, Petar Atanasov, co-head of sovereign research at emerging markets asset manager Gramercy, tells Axios.

  • "There are risks and fragilities in the Turkish economy that probably are not a problem now, but they will over time become more serious if the policy trajectory is not adjusted."

The big economic risk is that the removal of the threat of sanctions from the U.S. will give Turkey's central bank cover to continue cutting interest rates to a level below inflation, stamping out a meaningful recovery in its current account and leading to another pickup in inflation.

  • "So in some ways today's detente, if it holds, actually is laying the seeds for currency weakness over the next 3 to 6 months, because the odds that the central bank overplays its hand has increased," Ed Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle, tells Axios.

Details: The lira has fallen by more than 10% so far this year, despite efforts by the central bank and Turkish President Recep Tayyip Erdoğan to hold it steady.

  • However, it has risen meaningfully from its all-time low hit in August 2018. Turkish state-owned banks have been buying the currency since the Syria incursion began last week, bankers and strategists said, and are expected to continue.

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