Turkey is an important country in Europe and Asia with a GDP of more than $850 billion. The country has in the past applied to join the European Union in a bid to become more Western. The country is known for its vehicle, machinery, and refined petroleum products. It is also known for its large fashion industry.
In recent months, Turkey has not been at peace. Its economic growth has faltered, inflation has risen to more than 15%, and its currency is now at an all time low after losing 30% of value this year. The latter point is a good way to see what happens when the executive branch of a country takes over the monetary policy decisions.
Still, the Turkish government can help stabilize the currency. First, the government can negotiate with the United States. This week, the Trump administration announced fresh sanctions on the Turkish government for the arrest of an American pastor. These sanctions will have a negative effect on the Turkish economy and its currency.
Second, the central bank can move to raise interest rates. With inflation this high, the only logical intervention by the bank is to hike rates, a move that would go against Erdogan’s pledge. Third, the government can talk with IMF in a similar manner to what Argentina did. With a reluctant central bank, this will be unlikely to happen because the IMF will demand a tightening of the economy. The final option for the Turkish government is status quo. This is still manageable because the country’s budget deficit is at 2% of the GDP, which is significantly low.
The USD/TRY pair reached 5.7412, which is the highest level ever. The pair is now above all the major moving averages and the RSI is currently overstretched at almost 90. This is an indication that for contrarian and long-term traders, this is an ideal period to look at the Turkish Lira. However, in the short term, the pair could continue to move higher.