USD/TRY: This Turkish lira rally is not built to last

  • The USD/TRY has fallen sharply this week because of departures in Turkish finance ministry.
  • The president fired the central bank governor while the finance minister resigned.
  • An analyst at Commerzbank predicted that the Turkish lira rally will not last.

The USD/TRY dropped by most since 2018 as investors remained hopeful that Turkey will go back to monetary norms. The pair dropped by 6.73% and reached a low of 8.000.

USD/TRY has fallen this week

Is the Turkish lira strength returning?

The Turkish lira has been on the wrong path for more than a decade. Since 2008, the currency has dropped by more than 640% against the US dollar. This year alone, it has lost more than 30%, becoming the world’s worst-performing currency.

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The sad decline of the Turkish lira has been mostly because of the lack of independence of the central bank. According to the law, only the president can appoint and fire the governor of the Turkish central bank (CBRT). That has made it almost impossible for the governor to hike rates as needed.

This year, the central bank has dropped interest rates about 9 times as the country deals with the virus. In its most recent decision, the bank decided to leave interest rates unchanged, which was a surprise since most analysts were expecting a hike.

Yesterday, the USD/TRY dropped sharply after a series of departures and appointments. On Friday, the president fired Governor Murat Uysal and appointed a new one. He blamed the governor for not doing enough to cushion the currency. He was replaced by Naci Agbal. Also, during the weekend, the country’s Finance Minister announced his resignation.

As such, investors are betting that the Turkish central bank will move swiftly and raise interest rates considering that the rate of inflation is above 11%. The next meeting of the Turkish central bank is scheduled for November 19.

Still, some analysts believe that the Turkish lira rally will not last long. In a statement to the Financial Times, Ulrich Leuchtmann, an analyst at Commerzbank said:

“Do not let the immediate reactions this morning deceive you. This rally will not last long as the underlying problem is not tackled: the lack of independence and credibility of monetary policy.”

Analysts also believe that the relations between Turkey and the US will not improve in the new administration. Indeed, they expect new sanctions on Turkey by the Biden administration because of its purchase of a Russian missile system.

USD/TRY technical outlook

USD/TRY technical chart

The daily chart below shows that the USD/TRY dropped sharply on Monday. It has risen for the second consecutive day today. It is also slightly above the 25-day and 50-day exponential moving averages. It is also above the ascending trendline that is shown in green. Therefore, the pair will likely continue moving in bullishly so long as the price is above the trendline at 7.800. Create a free forex demo account and start your trading journey.

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