USD/TRY: Here’s why the Turkish lira continued its sell-off

The USD/TRY exchange rate surged to another all-time high on Thursday after the latest minimum wage news. The pair soared to a high of 29.50, as it approached the key psychological level of 30. It has been in a remarkable rally this year since it was trading at 18.50 in January.

Turkish minimum wage

The latest USD to TRY exchange rate continued rising as investors reacted to the latest Turkish minimum wage data. The government decided to hike the minimum wage by 49% to help the residents deal with the soaring inflation.

Turkey’s minimum wage rose to 17,002, equivalent to $578. That hike was at the upper side of the band that analysts at Goldman Sachs were expecting. Therefore, there is a likelihood that the rising wages will lead to more inflation.

The most recent data showed that Turkish inflation surged to 62% in November, one of the highest globally. The rate is still lower than the pandemic high of 85.51%. 

The rising minimum wage will also have an impact on the broad economy. For one, it will likely lead to more job cuts as companies deal with rising costs. The most recent data revealed that Turkey’s unemployment rate stood at over 9.1%.

It will also widen the government deficit since it is one of the top employers in the country. The government employs essential workers like nurses and teachers. 

The wage increase came a week after the Central Bank of the Republic of Turkey (CBRT) delivered its seventh straight rate hike. In a statement, the bank boosted rates to 42.5% from the previous 40%. Rates stood at 8.5% before the country’s election earlier this year.

Still, Turkey’s real interest rates are in the negative zone. Real rates are calculated by subtracting rates from inflation. In this case, they stand at over -20% and the situation will worsen since analysts expect inflation to peak in May next year. 

USD/TRY forecast

USD/TRY chart by TradingView

The USD/TRY has been in a spectacular bull run in 2023 as it jumped by more than 36%. This made the Turkish lira the second-worst performing currency in the emerging markets after the Argentina peso. 

The daily chart shows that the pair has remained comfortably above the 50-day and 25-day Exponential Moving Averages (EMA). Further, the MACD has moved above the neutral point of zero while the Stochastic Oscillator rose above the overbought level.

Therefore, the outlook for the Turkish lira is still bearish for now. The pair will likely rise to the key resistance at 30 in the coming days. A move above this resistance will see it target the point at 31.