Will the TRY drop further?

Turkish Lira Forecast: Will the TRY Fall Further? Photo: rozdemir / Shutterstock.com

The Turkish lira fell to its lowest level since the December 2021 crash, ahead of a meeting of the Central Bank of Turkey (CBT) where it kept interest rates stable despite a 70% inflation rate.

The lira is down another 15% year-to-date against the US dollar after falling 46% in 2021, spurred by President Tayyip Erdogan’s unconventional views on tackling inflation by cutting inflation. interest rates rather than increasing them.

Is there a trading opportunity for currency (forex) investors to go long or short on the pound after the latest fall against the dollar? In this article, we take a look at the lira’s performance and analysts’ expectations.

USD/TRY Live Price Chart

Monetary policy pushes the lira to collapse

The Turkish Lira started 2021 at around 7.37 against the US Dollar and has been losing value throughout the year. The USD/TRY rate fell to 9.69 at the end of October, then hit a record low, reaching 16.42 on December 12.

“The seeds of the current lira crisis were sown when CBT Governor Sahap Kavcioglu launched an experiment in unconventional monetary policy, attempting to remedy high inflation by lowering interest rates. ‘have not been seeded by Turkish households spontaneously deciding to turn to foreign currency deposits instead of their national currency,’ wrote Tatha Ghose, FX and emerging markets (EM) analyst at Germany’s Commerzbank in a recent TRY analysis.

“Cutting rates is President Tayyip Erdogan’s now familiar view of how monetary policy should work. CBT tried to find conventional justifications for rate cuts, such as inflation was high due to transitory factors and that core inflation was lower than observed headline inflation. But such arguments do not make sense because even the core inflation rate is many multiples of the inflation target, and that has been the case for a decade (nothing to do with recent transitory factors) – other central banks would not dream of lowering interest rates against such a backdrop,” Ghose added.

Turkey’s central bank kept the country’s key rate unchanged at 14% on Thursday (May 26th), after cutting rates by 500 basis points since September as inflation hit 20-year highs. The currency crisis now coincides with rising prices for energy and other commodities driven by the Russian-Ukrainian conflict, further exacerbating inflation by driving up the cost of Turkish imports.

“Overall, we see pronounced weakness in the TRY in recent weeks and pressure on reserves with a decline of $7.4 billion (in gross reserves) despite continued currency purchases through the Safe Depository System. currencies and currency redemption requirements Inflation, on the other hand, maintained a rapid upward trend with downside risks given the general deterioration in price dynamics with a broadly supportive policy framework and the Russia/Ukraine war that is putting pressure on import prices,” Muhammet Mercan, chief economist for Turkey, at Dutch bank ING wrote on Thursday.

“While the current outlook calls for a significantly tighter monetary policy, the BCT is not signaling any change in the near term, remaining silent again in May and signaling continuation of the same policy line.”

Will the Turkish lira go up or down?

The value of the pound is weakening at a time when the value of the US dollar is particularly strong. The U.S. dollar index (DXY), which measures the dollar against a basket of currencies, hit a nearly 20-year high on May 12.

The USD/TRY exchange rate fell to the 11 level in late December as the lira tried to rebound from the crash, but resumed its decline in 2022, with the pair returning to the all-time high of 16.

Per Hammarlund, chief emerging markets strategist at Sweden’s SEB bank, wrote on May 11 that “Rising U.S. and global interest rates, combined with slowing growth, are poisonous brew for the appetite for risk for emerging markets in general and for Turkey in particular… With elections looming in June 2023, Erdogan will prioritize growth over inflation, which will continue to mount pressure on the lira.

The EUR/TRY currency pair fell from level 9 at the beginning of 2021 to 18.45 during the December collapse. The rate fell back to 12.07 as it tried to rebound, but recent lira weakness took it down to 17.52. The EUR/TRY rate has increased by 12.10% in the last four weeks and by 69.22% in the last year. The pair missed the December high as the euro has since come under pressure from the impact of the Russian-Ukrainian conflict on the region’s energy supply, raising the specter of a recession.

EUR/TRY live price chart

The GBP/TRY pair fell from the 10 level at the start of 2021 to 21.73 in December, returning to 14.26 before the lira resumed its decline. The British pound gained 11.05% against the lira last month and 70.98% last year. The GBP/TRY rate traded as high as 20.72 on May 26 – as with the euro rate, the pound sterling has come under pressure this year, preventing the same performance as the US dollar from reaching the December level.

GBP/TRY live price chart

What is the outlook for the Turkish currency given the country’s monetary policy trajectory and the international macroeconomic backdrop? We take a look at the latest Turkish Lira future forecasts from analysts below.

Turkish Lira forecast: Can TRY stabilize or will it lose value further?

“The lira exchange rate temporarily stabilized after the government and central bank launched rescue measures, such as incentives to convert foreign currency deposits into lira deposits and forced conversion of lira receipts. export in order to increase the supply of dollars on the market. The approach is called ‘reading’ economics,” Ghose wrote. “These policies do not address the central problem of inconsistent monetary policy and an uncredible central bank. There are already media reports that banks need to intervene in FX to hold the lira…After a brief pause, we anticipate the next big move in USD-TRY.

“We anticipate pressure to return to the exchange rate over the next two quarters, which will likely create more stress for the financial system and the central bank, eventually forcing at least an interim reversal via emergency rate hikes. Ultimately, however, CBT rate hikes under the current policy framework will not be credible and the lira will likely set a new depreciation path through 2023. Precisely when and how this policy experiment will be abandoned remains entirely uncertain. .

How do you feel about USD/TRY?

Vote to see the sentiment of traders!

Hammarlund also expects the lira to decline further, noting: “In the coming weeks, we expect either the depreciation of the lira to accelerate or some form of action from the CBRT or government to stabilize the currency (perhaps a tax or interest rate to buy TRY) With the current account deficit widening, inflation at 70% and the REER rising, the stability of USD/TRY is not sustainable.

SEB’s Turkish lira forecast predicted that the USD/TRY rate could reach 18.50 before the end of the second quarter.

“The combination of rising inflation, higher inflation expectations, static monetary policy that keeps real rates deep in negative territory, and external funding pressures are starting to bite for forex traders. policymakers have shown an increased appetite for a weaker pound over the past year, the recent depreciation further increases the risk of tighter capital controls,” Monex Europe analysts wrote in their May 25 daily report.

Five-year performance USD/TRY, EUR/TRY, GBP/TRY

Turkish Lira Forecast 2022-2025

Analysts’ consensus indicated that there could be room for further weakness in the value of the Turkish Lira.

Danske Bank’s Turkish Lira exchange rate forecast was the most bearish, predicting that the USD/TRY rate could reach 20 in 12 months. ING predicted that it could take longer to reach this level, with the rate reaching 20 in Q4 2023 in its forecast and reaching 23 in Q4 2024. Monex Europe, on the other hand, saw the potential for the rate rise at 2:50 p.m. in a year.

USD/TRY Forecast

Commerzbank saw the lira continue to lose value against the euro in its TRY forecast. The bank expected the EUR/TRY rate to hit 20.34 in the third quarter and 20.88 in the fourth quarter, before bouncing back to 17.92 in the fourth quarter of 2023.

Trading Economics was also bearish in its projections for the Turkish lira as of May 27, forecasting that the USD/TRY rate could decline from 16.35 at the end of the second quarter to 17.73 within a year, while the EUR/TRY rate could go from 17.18 by the end of this quarter to 18.34 in a year. Additionally, Trading Economics expected a GBP/TRY rate of 20.3138 by the end of this quarter and 21.6623 in 12 months.

EUR/TRY Forecast

When looking for Turkish Lira future predictions, it is important to keep in mind that analyst forecasts may be wrong. Analyst expectations are based on fundamental and technical study of currency pair performance. However, past performance is not a guarantee of future results.

Do your own research and always remember that your decision to trade depends on your attitude towards risk, your expertise in this market, your portfolio allocation and how comfortable you are with losing money. And never trade more money than you can afford to lose.


Leave a Reply

%d bloggers like this: