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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