USD/TRY: The next big move is around the corner – Commerzbank

The Turkish lira is beginning to move again. As inflation expectations rise above 40%, economists at Commerzbank note that the USD/TRY is set to experience a significant move.

Market’s view of inflation becomes more negative

“Lira was not the most affected by developments in Russia, so far. Nevertheless, it is now inching weaker all of a sudden. One fundamental reason is that Turkey’s balance of payments is highly sensitive to energy and commodity prices.”

“While we are still in Q1, the market anticipates inflation to continue at 40%-plus through to year-end – in other words, the market does not believe that the central bank’s or government’s rescue policies will dampen inflation even in the medium-term.”

“We have always viewed the lira’s sideways move as only a brief pause – as the market’s view of inflation becomes more negative, this translates into a more negative view about the prospective real interest rate, which in turn increases the likelihood that the next big move in USD/TRY is around the corner.”