USD/TRY forecast: Turkish lira in uncharted territories

The USD/TRY price jumped to an all-time high on Wednesday after the relatively strong Turkish consumer price index (CPI) jumped. The pair rose to a high of 9.8, meaning that the Turkish lira has slumped by more than 30% this year alone.

Turkish lira decline

While Turkey is often seen as a major emerging market country, its currency has been in a strong bearish trend in the past decades. For one, the USD/TRY price has risen by more than 600% since 2008. This makes it one of the worst-performing currencies in the world.

This decline has been mostly because of the central bank and the country’s president. Unlike in most countries, the president can appoint and fire a central bank governor at will. This usually means that there is no independence of the central bank.

President Erdogan has been in conflict with the Fed for years. These conflicts has seen him fire more than 5 central bank governors in the past few years. The most recent firing happened in March this year, which pushed the Turkish lira further lower.

And in September, he fired three Central Bank officials who were opposed to interest rate cuts. As a result, the Central Bank of the Republic of Turkey (CBRT) slashed rates at a faster rate than expected in October. That was the second rate cut this year. 

Erdogan and the current CBRT chair believe in an unorthodox monetary policy theory that high-interest rates lead to inflation. 

Data published by the statistics agency on Wednesday showed that the country’s inflation jumped to almost 20% in October. This trend was blamed by the rising commodity prices and the relatively weak lira.

Therefore, fundamentally, there is a likelihood that the USD/TRY will keep rising as the Fed embraces a more hawkish tone.

USD/TRY forecast

The daily chart shows that the USD/TRY pair has been in a strong bullish trend in the past few months. The rally accelerated when the pair managed to move above the key resistance level at 8.8160, which was the highest level in June.

The pair’s bullish trend is being supported by the 25-day and 50-day exponential moving averages (EMA) while oscillators like the Relative Strength Index (RSI) and MACD have continued rising. Therefore, the Turkish lira will likely keep worsening as bulls attempt to rise to more than 9.