USD/TRY forecast: No end in sight for the Turkish lira meltdown

The Turkish lira meltdown continued on Monday morning. The USD/TRY price is trading at 16.75, which is a few pips below its all-time high of 17.00. This means that the lira has collapsed by more than 120% this year alone.

Turkish lira meltdown continues

The USD/TRY, GBP/TRY, and EUR/TRY pairs have been in a strong bullish trend in the past few months as concerns about the Turkish economy remains. Investors are focused on the actions of the country’s central bank (CBRT) and the presidency.

Unlike in most countries, the Turkish president has significant power over the central bank. He can hire and fire officials whenever he wants. And these officials don’t go under any public vetting.

Therefore, Recep Erdogan has been able to have an outsize influence on the bank. In the past 12 months, he has replaced two central bank governors who failed to slash interest rates. And two months ago, he decided to fire three officials who opposed rate cuts.

On Thursday, the CBRT slashed interest rates by 100 basis points to about 14%. This is notable since the official government statistics place the headline inflation at about 21%. Many analysts believe that the situation is relatively worse than that.

The USD/TRY pair ignored the latest actions by the government. The president announced a 50% increase in the minimum wage. At the same time, the main stock exchange was halted on Friday after the main index clashed by about 5%. This happened as the worthless lira declined by about 7% on Friday alone. Still, the index is still about 40% higher this year as investors bet on the country’s exporters.

Still, Erdogan insists that the Fed should continue cutting interest rates as the election nears. This is an unorthodox view that analysts believe will lead to significant inflation.

USD/TRY forecast

The USD/TRY pair has gone vertical this year as the Turkish lira collapses. The pair has continued surging and subsequently move above the 25-day and 50-day moving averages. Oscillators like the MACD and the Relative Strength Index (RSI) have continued surging in the past few months.

Therefore, the pair will likely keep rising as the Turkish lira collapse continues. Still, the par could show some volatility if the central bank decides to intervene by hiking rates. This is relatively a far-fetched idea though.