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Turkish lira: roller coaster continues

Turkish lira: roller coaster continues

Updated

How much unexpected news the Turkish lira can handle? Just two months have passed after Turkish President Tayyip Erdogan fired the central bank’s governor and replaced him with Sahab Kavcioglu, who was expected to conduct a policy of low-interest rates. That is, the president created conditions for extremely high inflation and lower economic growth. However, the challenges for the Turkish lira were not over. On Monday, April 26, the Turkish lira plunged on the straightforward comments of US President Joe Biden. So, what exactly happened?

US policy has taken a new course  

On April 25, the US President commemorated the mass killing of Armenians in the Ottoman Empire and called it a “genocide”. This refers to the events that happened at the beginning of the XX century. Turkey has denied that its predecessors in the Ottoman Empire were connected with acts of brutality against the Armenian people.  The reaction from the Turkish side came right away. According to the Turkish foreign ministry, the USA has made a “grave mistake” that affects the mutual trust and friendship ties between the two countries. The news resulted in swings of the Turkish lira, as USD/TRY has spiked above the highs of March 22.

It’s worth mentioning that the Turkish assets are highly sensitive to the escalation of relations between the USA and Turkey given past US sanctions and economic threats.

What else is driving the TRY down?

The dovish policy by the Turkish central bank is another factor that affects the TRY negatively. According to analysts, the regulator will begin cutting rates in the middle of the year. They also suggest that the new governor may re-impose the expensive policy of selling foreign currency reserves to support the lira.

Technical picture

USD/TRY

The USD spiked against the Turkish lira at the early hours of the European trading session. Still, sellers could control the momentum and hold the pair below the ascending trendline. We may expect bulls to try regaining their strength and pushing the pair towards 8.5. After that, reaching 8.5500 will be highly likely. On the downside, the support levels lie at 8.25 and 8.14.

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