USD/TRY Forecast: What Next for the USD to Turkish Lira?

Summary:
• The Turkish lira has gone nowhere in the past few months as it sits close to its all-time low. The USD/TRY exchange rate is trading at 18.60

The Turkish lira has gone nowhere in the past few months as it sits close to its all-time low. The USD/TRY exchange rate is trading at 18.60 while the Turkish lira to GBP was trading at 0.0443. Similarly, the lira to EUR was trading at 0.0512, which was about 70% below its highest level in 2020.

Will the Turkish lira recover

The Turkish lira has been the worst-performing emerging market currency in the past few years. It has slumped by 75% against the euro in the past five years. In the same period, the currency has crashed by 80% against the British pound and the US dollar. Lira’s crash goes way back in the past few decades.

The USD/TRY price has surged because of the actions of the Central Bank of Turkey (CBRT). Unlike other banks, the CBRT is not independent since the president has the power to hire and fire officials at will. And since Turkey is an Islamic country, the president hates interest rates. As such, Erdogan has done everything possible to push interest rates as low as possible.

Since 2021, the CBRT has slashed interest rates from 20% to 9.5%. The most recent rate cut happened last week when the bank dropped by 50 basis points as was widely expected. As a result, low rates have led to hyperinflation, with the headline CPI standing at over 85%. 

The CBRT has used the lira weakness to boost its gold holdings. Its holdings have surged to over 475 tons, the highest level in more than 2 years. It has become the biggest gold buyers in the past few months. At the same time, it has made several currency swap agreements with countries like China, UAE, and Saudi Arabia. 

So, has the Turkish lira collapse capitulated? It is unclear whether the Turkish lira has more room to fall since it has remained in a tight range for months. Still, with an election coming in 2023, there is a likelihood that it will remain under pressure.

USD/TRY forecast

Turning to the weekly chart, we see that the USD/TRY price has been in a strong bullish trend in the past few months. Notably, the pair has been stuck at the key resistance point at 18.80, which is its all-time high. It is also slightly above all moving averages while the Relative Strength Index (RSI) has moved above the overbought level.

Therefore, the USD to Turkish lira will likely remain in this range in the coming days. A move above 18.90 will mean that bulls have prevailed, which will open the possibility of it soaring to 20. On the other hand, a drop below 18 will be a bearish sign.