The Turkish lira is in trouble as concerns about the country’s economy continue. The USD/TRY exchange rate jumped to a record high of 20.16 after Erdogan won the election, setting the stage for status quo in fiscal and monetary policy. Similarly, the GBP/TRY and EUR/TRY continued surging as well.
Turkish lira crash to continues
The Turkish lira has been one of the worst-performing currencies in the emerging markets. It has crashed by almost 24% in the past 12 months and by 330% in the past five years. In all, the currency has lost almost 900,000% of its value since 1990.
This means that savers with the Turkish lira have seen the value of their investments plummet in the past decades. Now, after Erdogan’s victory, the status quo will likely continue in the next five years.
For one, Erdogan will still maintain substantial control over the country’s central bank. In the past few years, he has fired central bank hawkish central bank officials and forced the bank to cut interest rates in a period of high inflation. Now, official statistics shows that Turkey’s inflation stands at more than 44%.
Meanwhile, Turkey’s foreign reserves are running out. Data compiled by TradingEconomics shows that the country has about $60 billion of foreign reserves, down from last year’s high of almost $90 billion. In 2014, the country’s reserves were over $110 billion.
Meanwhile, because of Erdogan’s policies, analysts believe that the country’s foreign direct investment (FDI) will continue falling in the coming years. FDI dropped by over $440 million in March. Foreign investors are concerned about capital flow rules, high inflation, and the unconventional policies by the central bank.
The government’s budget deficit is set to continue widening after Erdogan dished wage increases to government employees.
The fundamentals for the Turkish lira are extremely bearish since they mean that policies of the last 30 years will remain. Technicals are also bullish. On the daily chart, we see that the USD to TRY exchange rate has been in a strong bullish trend in the past few months. Along the way, the pair has remained above all moving averages while the money flow index has moved to the overbought level.
Therefore, the pair will likely continue rising in this Erdogan’s term as buyers target the next psychological level of 30. This means that Turkish lira holders will see their purchasing power plummet while others will run to the safety of the US dollar.
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