USD/TRY forecast: Lira stumbles as Turkish inflation surges

on Jan 3, 2022
  • The USD/TRY pair has jumped sharply recently.
  • On Monday. The Turkish statistics agency published strong inflation data.
  • Turkish inflation surged to a record 36% after the CBRT rate cuts.

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The USD/TRY pair jumped to the highest level since December 2021 after the latest Turkish consumer price index (CPI) data. The Turkish lira is trading at 13.50 against the US dollar. 

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Turkish inflation rises

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The Turkish Central Bank has been on a path of self-destruction in the past few months. The bank has defied orthodoxy and embraced policies that don’t make sense. It has done that by cutting interest rates three times even as the country’s inflation rises. In total, the bank has cut rates from about 20% to 14%.

Data published on Monday showed that, as expected, Turkey’s inflation is surging. According to the country’s statistics agency, the headline consumer price index (CPI) rose from 21.31% in November to 36.08% in December. On a month-on-month basis, the CPI rose from 3.51% in November to 13.58% in December. These numbers mean that Turkey has the highest inflation in the emerging markets.

The producer price index (PPI) was even worse. Official data showed that PPI jumped from 9.99% in November to 19.09% in December. On a YoY basis, the PPI rose from 54.62% to 79.89% in December. 

Sadly, the situation will continue worsening this year considering that the country will go to an election this year. In most countries, the local currency tends to fall in an election year. Also, there is a possibility that more people in Turkey embrace foreign currency.

Another reason why the USD/TRY could keep rising is that there is a divergence between the Fed and the CBRT. While the CBRT has adopted a dovish tone, the Fed has hinted that it will start to hike interest rates this year. This means that countries like Turkey that have billions in dollar-denominated debt will pay more. 

USD/TRY forecast

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The four-hour chart shows that the USD/TRY pair declined by 44% on December 22nd after the new measures by the Turkish government. The decline was short-lived as the pair has bounced back recently. It is trading at 13.50, which is about 32% above the lowest level in December. The pair has moved slightly above the 25-day and 50-day moving averages (MA) while the MACD has moved slightly above the neutral level. Therefore, the USD/TRY pair will likely keep rising as bulls attempt to retest last year’s high at about 18.


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