The USD/TRY price retreated sharply this week after the government unveiled new measures to boost the currency. The USD to TRY exchange rate crashed by as much as 8.34% on Monday and tested a low of 16.10. It is now trading at 16.70 as investors continue being concerned about the Turkish lira,
Why did the lira jump?
The USD/TRY price retreated sharply after the government announced new measures on the country’s currency. In a statement, the Erdogan administration said that it will restrict access to commercial loans to big companies that have huge foreign currency holdings. The goal is to boost demand for the Turkish lira among the biggest companies.
The USDTRY has recovered slightly after this week’s crash. This price action is mostly because analysts see a slowdown in the country’s economy due to these restrictions. Besides, most big corporations in Turkey hold their assets in currencies like the US dollar and euro because of the ongoing crash of the lira. As such, the regulations could make the employment and inflation situation even worse.
There are other risks to Turkey due to these rules. For example, foreign lenders might be reluctant to fully roll over their existing debts to Turkish firms. Similarly, some companies interested in the Turkish market might consider delaying investments until they have a good understanding of the issue.
Most importantly, the measure does not solve the main challenge that the Turkish lira is facing. The problem is that the CBRT has embraced a dovish tone in a period of high inflation. It left interest rates unchanged last week and hinted that it will not hike this year even as inflation remains above 70%.
The four-hour chart shows that the USD to TRY price crashed hard earlier this week. It then quickly erased most of those losses as investors reflected on the situation. The pair is now trading at 16.70, which is higher than this week’s low of 16.10. The price is slightly below the 25-day and 50-day moving averages.
It has even formed a bullish flag pattern, which is usually a positive sign. Therefore, there is a possibility that the Turkish lira crash is not over and that the pair will move above 17 in the near term. A drop below 16.40 will invalidate the bullish view.