Turkish Lira Fell 7% This Morning as Potential Policy Shift Gains Momentum, USD/TRY Above 23.0000
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USD/TRY PRICE, CHARTS AND ANALYSIS:
- USD/TRY Prints Fresh Highs Above the 23.0000 Mark as Policy Pivot Hope Grows.
- Mehmet Simsek Appointed Finance Minister with Hafize Gaye Erkan in Line for the Central Bank Governors Post.
- DXY Continues Looks Ripe for a Slide, Could This Benefit the USD/TRY?
- To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section.
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PRESIDENT ERDOGAN NAMES NEW CABINET AND FINANCE MINISTER
Turkish President Recep Tayyip Erdogan took the oath of office on Friday June 2 as he looked to name his new Cabinet and more importantly a new Finance Minister. Erdogan began a historic third term with the appointment of well-known and internationally respected former banker Mehmet Simsek as the new Finance Minister.
Mehmet Simsek named as Finance Minister
Source: dia images/euronews
President Erdogan faces a host of challenges and criticism as his term begins with the appointment of Simsek seen as a rare positive. Optimism swelled following the announcement that President Erdogan may finally let go of his unconventional approach to monetary policy and adopt a more traditional one. Mr Simsek has previously worked as a banker for Merrill Lynch and returns to the political arena following a 5-year absence. It promises to be a challenging role for Simsek as the Turkish economy grapples with runaway inflation hovering around the 40% mark at present, while the Lira continues to bear the brunt down around 10% prior to todays selloff.
Among the policies to attract criticism has been President Erdogan’s insistence on lower interest rates to promote growth. This obviously flies in the face of conventional wisdom which espouses for rate hikes when combatting inflation.
ECONOMIC OUTLOOK AND THE WAY FORWARD
The hope for a policy pivot gathered steam today as state banks are set to relax defenses in a move seen as a positive sign of a policy shift. The Lira has seen a 7% drop today with the lack of intervention likely to allow the Lira to find a sustainable level, a sign of a return to free markets perhaps? This is likely to be key for Turkey as they look to entice foreign investment once more.
A sense of perspective is required however, as President Erdogan a self-described enemy of interest rates has a penchant for walking back decisions pretty quickly. This is clear when looking at Central Bank Governors with Erdogan having been through 4 Governors in the last 5 years.
The Central Bank Governor post meanwhile remains vacant with Erdogan is considering appointing Hafize Gaye Erkan, a senior finance executive in the United States. Reuters reported that Erkan met with Simsek in Ankara on Monday with many hoping the two can convince Erdogan on the need for a normalization in policy.
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TECHNICAL OUTLOOK AND FINAL THOUGHTS
Looking at the bigger picture, volatility is expected to remain high over the coming days. USDTRY continues to tick higher with little in the way of price action to analyze as the moves have been so abrupt and volatile.
The selloff in the Lira today is likely being seen as early signs of a potential policy pivot with a lack of intervention boding well for Turkey and the Lira in the medium and longer term. Analysts are looking toward the 25.0000-28.000 range as a target (sustainable level) for USDTRY which is realistic, however we may see some firm of pullback before that. The 14-day RSI on both the daily and weekly timeframe are extremely overbought and might be worth monitoring given the lack of price action.
USD/TRY Daily Chart – June 7, 2023
Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.