No end in sight for the Turkish lira plunge

3 mins read
No end in sight for the Turkish lira plunge

The USD/TRY is in the spotlight after the pair jumped by as much as 15% in early trading. The Turkish lira dropped to 8.47 even as some analysts predicted another currency crisis. The GBP/TRY soared by 18% while the EUR/TRY rose by 18.12%. 


Turkish lira pressured

Recep Tayyip Erdogan, the Turkish president, is not a fan of high-interest rates. In past interviews, he has claimed that high rates tend to hurt the economy.

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On Friday evening, the president surprised the market when he decided to fire Naci Agbal, a respected economist who had succeeded in stabilising the currency. He replaced him with Sahap Kavcioglu, a professor in banking and a former lawmaker. 

In a recent article, the new CBRT governor said that high-interest rates would indirectly lead to higher inflation. This is an unorthodox monetary theory.

This decision came a day after the CBRT made a surprise interest rate hike in its bid to tackle the rising inflation. 

Naci Agbal has been louded by the market for his recent actions. Since becoming governor in October, he has raised rates by 8.75% to 19.0%. These actions helped stem the relentless sell-off of the lira, which was at its lowest level on record against the dollar. 

In response to Agbal’s exit, the USD/TRY price jumped by more than 15% as forex investors started to price-in the possibility of high inflation. In a bid to calm the market, the country’s finance minister said that the government would continue to prioritise price stability. And in a note, analysts at Societe Generale said:

“Without much remaining reserves to defend the currency, and considering an expected exodus in foreign and local investor capital, it may be difficult for Turkey to avoid another currency crisis in the coming months.”

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USD/TRY technical forecast

USD/TRY chart

The daily chart shows that the USD/TRY price rose to an all-time high of 8.5765 last year. It then declined by almost 20% as the central bank hiked interest rates. Recently, it has been on an upward trend because of the performance of the yield market. On Monday, the USD/TRY moved close to its all-time high. As a result, it is above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) and other oscillators have also rallied. The Supertrend indicator is also bullish. Therefore, the pair may resume the uptrend as bulls attempt to retest the all-time high at 8.57.