Turkish Lira could crash to 20 if this happens

The USD/TRY price is approaching its all-time high as Turkey’s inflation continued soaring. The Turkish lira slipped to 17.95 against the US dollar, which is slightly below its all-time low of 18.38. It has fallen by more than 70% in 2022.

Turkish lira gets more worthless

The USD to TRY exchange rate continued rising after more worrying data from Turkey. According to the country’s statistics agency, Turkey’s headline consumer inflation rose from 78.62% in June to 79.6% in July. This increase was slightly lower than the median estimate of 80.50%. On a positive note, the country’s inflation fell from 4.95% to 2.37% on a month-on-month basis.

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Additional data showed that Turkey’s producer price index (PPI) rose from 138.31% to 144.61% in July. Like the CPI, the figure slipped slightly from 6.77% to 5.17%. These numbers imply that the country’s inflation is easing even though it remains at its all-time high.

There are several reasons why Turkish inflation has surged. First, the weakness of the Turkish lira has contributed to the weakness since Turkey depends fully on imported energy. As a result, Turkish importers are now paying more for their imported products.

Second, the Central Bank of the Republic of Turkey (CBRT) has maintained a dovish tone even as inflation eases. This is in contrast to what other developed and emerging market central banks are doing. For example, the South Africa Reserve Bank (SARB) and Banxico have delivered several rate hikes this year.

Worse, the CBRT has hinted that it will maintain a dovish tone in the coming months. Instead, its actions to boost the lira have failed. For example, it has pledged to compensate Turkish deposit holders affected by inflation. It has also put measures to prevent companies with huge foreign reserves from accessing loans.

USD/TRY forecast

The daily chart shows that the USD to TRY exchange rate has been in a strong bullish trend in the past few months. The pair has remained above the 25-day and 50-day moving averages and is approaching its all-time high of 18.38. The Relative Strength Index (RSI) is above the overbought level of 70.

Therefore, the USD/TRY forex pair will likely continue rising unless the CBRT intervenes and starts to hike interest rates. A move above the resistance at 18.38 will see the lira crash to 20.

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