USD/TRY: Little reason to be optimistic on the future prospects for the Turkish lira – Wells Fargo

According to analysts at Wells Fargo, the Turkish lira could drop to new record lows assuming that tensions between the US and Turkey remain elevated, geopolitical developments, combined with policy uncertainty and fragile fundamentals of the Turkish economy. 

Key Quotes: 

“We see little reason to be optimistic on the future prospects for the Turkish lira. President Erdogan continues to influence central bank monetary policy and suggest interest rates should be lowered. In addition, Erdogan continues to purge central bank officials that seem at odds with his view on easier monetary policy. While policy rates have held steady for a few months in a row, we expect previously higher interest rates to be unwound in the near future, which should result in a further depreciation of the lira. Elevated policy uncertainty should also keep sentiment toward the lira negative for the time being, while still weak economic fundamentals should keep the currency under pressure.”

“We also believe geopolitical tensions between the United States and Turkey can contribute to a weaker currency. President Biden and President Erdogan recently met in an effort to ease tensions; however, little progress was made and the lira sold-off in the immediate aftermath.”

“Assuming tensions remain elevated, geopolitical developments, combined with policy uncertainty and fragile fundamentals should result in the lira hitting all-time lows.”