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USD/TRY Outlook As Turkish Keeps Sinking

Poster of Turkish Prime Minister Recep Tayyip Erdogan and Turkish flag on a building in Bursa,Turkey.20 May 2018

It appears that nothing is working in favor of the Turkish Lira as the USD/TRY is set to close another green month. This will mark the 3rd consecutive month of decline for the lira against the US dollar.

What is even more concerning is the fact that even a major pullback in the dollar strength index has failed to stop the bleeding of lira. As a result, the dollar to lira exchange rate has continued its ascent despite record-high rates in the country.

While the recent measures from the Turkish central bank and the government have been unable to stop the decline in Lira, they have still slowed down its descent against the greenback.

After this week’s rate hike of 500 bps, the interest rates in Turkey have hit a record high of 40%. Such a high interest rate may lure investors into buying back the lira, but this may take some time to take effect.

The following chart shows that while the USD/TRY pair surged 37% from May to August, it only rose 12% from September till now. This suggests that the high interest rates have given the lira much-needed support.

USD/TRY technical analysis
Dollar To Lira Chart