Summary:
- Turkish Lira gaining more than 1% against USD and EUR
- New Turkish fin min promises to bring down soaring inflation
- Moody’s highlights investor concerns
The Turkish Lira is attempting to make a recovery today, rising by more than 1% against both the Euro and USD after hitting its lowest ever level yesterday. The announcement earlier this week of a new Turkish cabinet was met with skepticism in the markets, with investors clearly concerned that Erdogan prioritised placing close allies into key roles over the most qualified candidates.
USDTRY has soared higher since the new cabinet was announced earlier this week. The market made an all-time high last night, just shy of the 5.00 handle. Source: xStation
Arguably the best example of this was the appointment of his son-in-law, Berat Albayrak as the country’s new finance minister. Having said that, some hawkish comments from Albayrak are possible the chief cause of today’s attempted recovery in the Lira, after he said that the central bank would be effective “like never before” and promised to bring soaring inflation down into the single digits “in the shortest time possible”.
Longer term the market remains in a strong uptrend with recent highs of 4.98 offering a potential level to look for resistance while 4.45 remains potentially key support. Source: xStation
Despite this rhetoric the outlook remains potentially weak for the Lira, with Moody’s warning that changes to the central bank’s governance and recent comments by Erdogan suggesting that the government’s plans to tighten monetary policy “may weaken rather than strengthen in the coming months.” The ratings agency also said that any further undermining of perceptions about the independence of the central bank would likely “exacerbate investor concerns, with negative implications for the cost and availability of the foreign capital inflows on which Turkey’s economy and financial system depend.”
The longer term scale of the TRY depreciation can be seen more clearly on a weekly EURTRY chart. The market has more than doubled since early 2015 and also made a new all-time high yesterday. Source: xStation