USD/TRY forecast: Lira is becoming worthless as Turkish CPI spikes

The USD/TRY exchange rate held steady on Monday after the latest Turkish consumer inflation data. The pair rose to a high of 18.22, which was slightly below the all-time high of 18.41. It has risen by more than 75% from its lowest level since January this year. The Turkish lira has crashed by more than 1,517% from the lowest level in 2008.

Turkish lira is getting worthless

The USD/TRY price has been in a strong bullish trend in the past few months as the Turkish lira continue getting worthless. Lira has crashed for two main reasons. First, the Central Bank of the Republic of Turkey (CBRT) has maintained an extremely dovish tone since last year.

In 2021, the central bank decided to slash interest rates from 20% to 14% in 2021. It has maintained this dovish tone this year. In August, the bank surprised investors when it decided to slash interest rates by a whopping 100 basis points to 13%. 

By slashing interest rates, the bank has taken an unconventional monetary policy. Historically, central banks usually hike interest rates in periods of high inflation. Indeed, data published by the Turkish statistics agency showed that the country’s inflation jumped to a multi-decade high of 80.21%. This increase was lower than the median estimate of 81.22%. 

On a monthly basis, the CPI fell from 2.37% in July to 1.46%, which was lower than the median estimate of 2.0%. Additional data showed that the producer price index (PPI) declined from 144.61% to 143.75%. On a month-on-month basis, the PPI dropped from 5.17% to 2.41%.

Therefore, analysts believe that the Turkish inflation will continue rising in the coming months after the extremely dovish tone by the CBRT. The USD/TRY has also jumped because of the extremely strong US dollar.

USD/TRY forecast

The daily chart shows that the USD/TRY forex exchange rate has been in a strong bullish trend in the past few months. Most recently, the pair has risen in a slow pace. It remains above the 25-day and 50-day moving averages. The Stochastic Oscillator moved above the overbought level of 80.

Therefore, the pair will likely keep rising as the divergence between the CBRT and the Federal Reserve continues. If this happens, it will likely continue soaring as bulls target the all-time high of 18.40, which will be followed by the next resistance at 19.