USD/TRY: This rally of the Turkish Lira is not for long – Commerzbank.


The USD/TRY exchange rate has fallen sharply this week due to departures in the Turkish Ministry of Finance.
The president dismissed the central bank governor, while the finance minister resigned.
A Commerzbank analyst predicted that the rally of the Turkish Lira will not last.

The USD/TRY exchange rate has fallen the most since 2018 as investors continue to hope that Turkey will return to the currency norms. The pair fell by 6.73%, reaching a low of 8,000.

USD/TRY has fallen this week
Is the strength of the Turkish Lira returning?

The Turkish Lira has been on the wrong track for more than a decade. Since 2008, the currency has fallen by more than 640% against the US dollar. This year alone, it has lost more than 30%, making it the world’s strongest currency.

The sad decline of the Turkish Lira is mainly due to the lack of independence of the Central Bank. According to the law, only the president can appoint and dismiss the governor of the Central Bank of Turkey (CBRT). This has made it almost impossible for the governor to raise interest rates when necessary.

This year, the central bank cut interest rates about nine times while the country is dealing with the virus. In its latest decision, the bank decided to leave interest rates unchanged, which came as a surprise, as most analysts expected an increase.

Yesterday the USD/TRY fell sharply after a series of resignations and appointments. On Friday, the president fired Governor Murat Uysal and appointed a new governor. He accused the governor of not having done enough to cushion the currency. He was replaced by Naci Agbal. At the weekend, the country’s finance minister also announced his resignation.

So investors are betting that the Central Bank of Turkey will act quickly and raise interest rates as the inflation rate is above 11%. The next meeting of the Turkish Central Bank is scheduled for November 19.

Nevertheless, some analysts believe that the rally of the Turkish Lira will not last long. In a statement to the Financial Times, Ulrich Leuchtmann, an analyst at Commerzbank, said

“Do not be fooled by the immediate reactions this morning. This rally will not last long unless the underlying problem is addressed: the lack of independence and credibility of monetary policy”.

Analysts also believe that relations between Turkey and the US will not improve in the new government. They even expect new sanctions by the Biden government against Turkey for the purchase of a Russian missile system.

Technical outlook USD/TRY
Technical Table USD/TRY

The daily chart below shows that the USD/TRY fell sharply on Monday. It has risen for the second day in a row today. It is also slightly above the 25-day and 50-day exponential moving averages. It is also above the rising trend line, which is shown in green. Therefore, the pair will likely continue to move bullish as long as the price remains above the trend line at 7.800. Create a free forex demo account and start your trading journey….


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