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USD/TRY Bull Run Shows No Sign of Slowing Down Through December

December 2, 2021

The Turkish lira is not done sliding. The USD/TRY rose to an all-time high of 14.00 on Wednesday. Similarly, the GBP/TRY and EUR/TRY pairs jumped to all-time highs of 18.30 and 15.87, respectively. This means that the lira has fallen by more than 35% against the US dollar, euro and pound in the past 30 days. 

The USD/TRY pair has been in a strong bullish trend for decades. It has jumped by more than 800% since 2007. This makes the Turkish lira one of the most worthless currencies in the world.

The crash of the Turkish lira is mostly because of the policies championed by President Erdogan. In his presidency, Erdogan has advocated for policies that lower interest rates. As a result, he has hired and fired central bank officials who believe in orthodox monetary policy.

For example, about two months ago, he fired three central bank officials who opposed the recent trend of monetary easing. As a result, the bank is now made up of officials who believe strongly that lower interest rates can help to slow inflation.

The CBRT has slashed interest rates three times this year. In this period, it has slashed rates by about 400 basis points. This is remarkable considering that other emerging market central banks like in South Africa and Brazil have hiked rates several times this year.

The impact of this monetary policy has been higher inflation. Recent data showed that the Turkish consumer price index rose by about 20% in October. Sadly, since Turkey is a net importer, the weaker currency will lead to higher inflation.

The USD/TRY jumped today after the president promised supporters that interest rates will keep falling ahead of the upcoming election. Therefore, while the CBRT has hinted that rate cuts have ended, the governor will be under pressure to cut more.

The daily chart shows that the USD/TRY pair has been in a strong bullish trend in the past few months. The pair managed to move above the important resistance at 8.81 after the CBRT started its easing cycle. 

Now, the USDTRY is significantly above its 25-day moving average while the Relative Strength Index (RSI) has moved to the overbought level. Therefore, there is a likelihood that the pair will keep rising as investors target the key resistance at 15.0 in December.

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