USD/TRY forecast: Lira implodes amid weak Turkish macro data

The Turkish lira continued its freefall this year and is hovering at its record low, a trend that may continue after the recent macro data from the country. The USD/TRY exchange rate rose to 43.85, up by 2.2% from where it started the year.

Turkey has released weak macro data lately 

The Turkish lira has not participated in the ongoing dollar debasement that has seen most emerging market currencies like the South Korean won, Chinese yuan, and South African rand have soared.

Data released by the Turkish statistics agency showed that the country continued to have a trade deficit as exports dropped. Exports dropped to $20.3 billion in January from the previous $26.3 billion.

Another report showed that the country’s imports dropped from $35 billion to $28.7 billion. As a result, the country's trade deficit came in at over $8.4 billion, better than the previous $9.4 billion.

Turkey is working on ways to boost its foreign trade, especially in Africa, which has emerged as a major trading partner..Just recently, President Recep Erdogan visited Ethiopia, a country that has emerged as one of the fastest growing economies in the region.

Another report showed that the country’s foreign exchange reserves dipped in February. They dropped from over $79 billion in January to $73.6 billion this month. These reserves have been in a strong downward trend since January when they peaked at over $86 billion.

Meanwhile, an upcoming report is expected to show that the economy slowed in the fourth quarter of last year. Economists expect the data to show that the economy slowed to 3.2% in the fourth quarter from the previous 3.7%. 

Additionally, analysts expect the upcoming report to show that the unemployment rate rose from 7.7% in December to 8.6%. 

At the same time, Turkey’s inflation has continued falling in the past few months. The most recent data showed that the Turkish inflation dropped to 30.65% in January from the previous 30.89% in December. Turkey’s inflation has been in a strong downward trend from 42.12% in January last year. 

Similarly, core inflation has continued moving downwards in the past few months. It dropped to 29.5% in January from 40.21% in the same month last year.

Therefore, the CBRT is expected to continue cutting interest rates, a trend that may continue in the coming months. The bank has been cutting rates from 50% in 2024 to the current 37%. 

USD/TRY technical analysis 

The weekly timeframe chart shows that the USD/TRY exchange rate has been in a strong uptrend in the past decades. It has soared by over 520% in the last five years and is now trading at 44.

The pair has remained above all moving averages, while the Average Directional Index (ADX) has jumped to 80.

Therefore, the most likely scenario is where the USD to TRY continues rising as bulls target the next key target at 45.