ISTANBUL, July 18 (Reuters) - The Turkish lira firmed onThursday afternoon after U.S. President Donald Trump said theUnited States is not currently looking at sanctioning Turkeyover its purchase of Russian air defence systems.
The currency was steady earlier in the day, shrugging offthe U.S. decision to remove Ankara from the F-35 fighter jetprogramme after it began receiving delivery of the Russian S-400missile defence system last week.
The lira briefly firmed to 5.6140 against thedollar following Trump's comments, before weakening to 5.6325against the dollar at 1716 GMT.
The currency was trading at 5.6860 against the dollar at0637 GMT, little changed from Wednesday's close of 5.6840.
The currency has been hit this year by Washington's threatsthat it would impose sanctions on its NATO ally should it gothrough with the purchase of the Russian system.
Isik Okte, a strategist at TEB Yatirim/BNP Paribas, said thestatement from the Pentagon on Wednesday regarding Ankara'sremoval from the F-35 programme was more moderate than expected.
"It is seen as certain that the U.S. will impose CAATSAsanctions but a much harder statement could have been made bythe Pentagon," he said, referring to a 2017 law known as theCountering America's Adversaries Through Sanctions Act.
"However, by using positive language, it is being pointedout that relations will continue and Turkey will not be allowedto grow closer to Russia."
The Pentagon on Wednesday said it was removing Turkey fromthe F-35 programme, adding that Ankara would lose jobs andfuture economic opportunities due to the decision.
The first parts of the S-400 air defence system were flownto the Murted military air base northwest of Ankara on Friday,sealing Turkey's deal with Russia.
Investors in Turkey were now focusing on interest rate cutexpectations.
Earlier this month, Erdogan, a self-described "enemy" ofhigh interest rates, sacked former Central Bank Governor MuratCetinkaya, saying he had failed to follow instructions oninterest rates.
In his first comments after being appointed, new governorMurat Uysal signalled a rate cut, emphasising that the bank had"room for manoeuvre" in its monetary policy.
The lira's decline has been stemmed by lower domestic demandfor dollar, uncertainty over an expected interest rate cut bythe central bank on July 25, as well as an increased global riskappetite on expectations that the U.S. Federal Reserve willlower rates, Okte said.
"The only thing that would disturb me at this point is ifthe central bank cuts interest rates by more than 400 basispoints," he said.(Reporting by Behiye Selin TanerAdditional Reporting by Sarah DadouchWriting by Ali KucukgocmenEditing by Daren Butler and Toby Chopra)