USD/TRY: No end in sight for Turkish lira unhinged plunge

USD/TRY: No end in sight for Turkish lira unhinged plunge
Written by:
Crispus Nyaga
4th September, 04:08
  • The USD/TRY pair is trading at an all-time high as the plunge of the Turkish lira continues.
  • This decline makes the Turkish lira the worst-performing currencies in the emerging markets.
  • The pair could climb further ahead of the US nonfarm payroll numbers.

The USD/TRY rose to an all-time high yesterday as traders reacted to the rising tensions in Turkey and the overall stronger dollar. The pair is trading at 7.4385, which is the highest it has ever been.

USD/TRY
USD/TRY vs USD/ZAR and USD/RUB

Turkish lira plunges

The Turkish lira has been in a strong downward trend for years. In the past five years, it has lost more than 150% of its value against the US dollar. And in the past 12 months, it has lost more than 32%, making it the worst-performing currencies in the emerging market. It has also lost against other currencies like the euro and the British pound.

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This week, the currency has lost because of the rising tensions between the US, Turkey, Cyprus, and Greece. This week, the US government said that it will start selling weapons to Cyprus, a move that has angered Turkey. This happened even as tensions between Turkey and the US have been escalating because of the former’s decision to buy military gear from Russia.

Most importantly, the Turkish lira has dropped because of the actions by the Turkish central bank. This year alone, the bank has slashed interest rates a record nine times. That has brought rates to a low of 8.25%, which analysts believe is a bit low. The bank has also implemented fringe rules to stabilise the currency. In a statement, an analyst at Bloomberg said:

“Currency depreciation remains a lingering threat and could keep Turkey’s price growth in double digits throughout the year. The lira’s weakening so far this year poses upward risks to the central bank’s inflation outlook.”

Yesterday, the USD/TRY pair rose sharply after the bureau of statistics released the latest inflation data. The numbers showed that the headline consumer price rose by 11.77% in August, lower than the 11.91% that analysts were expecting. On a MoM basis, the prices rose by just 0.88%. Meanwhile, the producer price index rose by 11.53% during the month. Such a high rate of inflation puts pressure on the central bank to start tightening.

The USD/TRY has also jumped this week because of the stronger US dollar. This has happened because of the relatively strong economic data from the United States. For example, data released yesterday showed that the number of people filing for initial jobless claims rose by 881K, the lowest figure since March.

USD/TRY technical outlook

USD/TRY
USD/TRY technical chart

The weekly chart shows that the USD/TRY pair has been in a strong upward trend. It has risen from 2.7865 to the current high of 7.4340. The price is above the short and longer-term moving averages. Most importantly, it has moved above the important resistance level at 7.2121, which was the highest level on May 4. Therefore, it seems like bulls are in the driver’s seat, which means that the price will continue to rise.

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