The Turkish lira strengthened to over a two-week high against the dollar on December 7 as ordinary Turks and state institutions followed President Recep Tayyip Erdogan's call to shore up the tumbling currency by converting foreign currencies into liras. 

The lira gained 1.64% against the greenback to trade at 3.3875 as of 18:15 Istanbul time, the lowest level since November 21. The lira hit consecutive record lows over the past few weeks on worries about domestic politics and the wealth of the country’s $720bn economy following July's failed coup attempt. The lira was also hit by a resurgent US dollar after the election victory of Donald Trump.

The mood changed over the past two days as Erdogan called on citizens to convert dollars “under their pillows” into lira and urged businesses to do more transactions in local currency. In response to the president’s call, Bourse Istanbul last week decided to convert all of its cash assets into lira and keep them in deposit accounts in local currency. Moreover, the privatisation administration (OIB) announced on December 6 that tenders will henceforth be held on a Turkish lira basis. More state agencies followed suit. In the meantime, restaurant owners, shopkeepers, barbers and traders are offering free goods and services to anyone with proof they sold dollars.

In a speech to provincial administrators in the presidential palace in Ankara on December 7, Erdogan drew parallel between the Turkish battle against Islamic State militants in Syria and efforts to support the lira. “There is no difference between Turkey's al-Bab operation and the efforts to stop forex speculation,” Erdogan said, according to Reuters. Erdogan also said he sees no financial reason for the lira's slide and put the blame on speculators. 

The lira's slight recovery on December 7 comes also as Prime Minister Binali Yildirim travelled to Russia, seeking to improve relations with Moscow. The countries expressed willingness to forge closer business ties. This is good news for Turkey whose exports and tourism industry have been hit hard by the sanctions Moscow imposed last year. Also, central bank governor Murat Cetinkaya’s statements on December 6 that monetary policy decisions will be based on inflation expectations, pricing behaviour and other factors affecting inflation supporter the lira's rally.

Investors are now waiting for the measures the government will unveil on December 8 designed to boost economic activity and employment. If market participants welcome these measures, the lira may further strengthen and stocks could rise. The main stock exchange index, BIST-100, increased 0.79% on December 7, extending gains to 3% over the past two days.