Since the
beginning of May the U.S. Dollar vs the Turkish Lira chart could be compared to
a space rocket, shooting off into the sky. This week the Greenback is up from 16.26 to
17.20 Turkish Lira, or by 3% over three days. This amounts to 600% of annual
yield. It seems that after a slow start, the “rocket” went shot far out into
outer space.
The Turkish
Lira is primary suffering from the Turkish Central Bank’s unusual monetary
policy directed by the President of Turkey Recep Erdogan. However, the
strengthening Dollar across the globe and amid the tightening of the monetary
policy by the Federal Reserve (Fed), has seen to support the “rocket’s’”
vertical lift off. The Lira lost ground after Mr. Erdogan vowed this week to
continue with interest rate cuts despite spiraling inflation. The Turkish
president said this week that the country had “wasted years” on the misguided
view that prices should be controlled by using higher borrowing costs to
suppress consumption. He also said the cost of living in Turkey should be
lowered while exports should increase.
Such odd
monetary policy approaches provided the Lira with poor support, and fueled its plunge this week.
Rising energy prices are also affecting the Turkish currency, while lower
interest rates are amplifying this plunge. The Turkish Central Bank’s international
Forex reserves have been dropping significantly over recent years, as the bank tried to support the Lira. Now this
option is no longer available.
The Lira
may continue to weaken towards 18.35 against the Dollar, an all-time low
reached in 2021. The technical correction may temporarily strengthen the Lira to
16.00-16.60, but it is very unlikely to amend the downside trend.
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