In Turkey, the appointments of a new central bank governor and a new finance minister have generated market-expectations of structural market-friendly changes in the government’s and the central bank’s economic policies. Analysts at Credit Suisse expect USD/TRY to trade within a wide range of 7.90-8.50 in the very short run and potentially all the way to the time of the central bank’s rate decision on 19 November. They then see a two-way risk to USD/TRY coming from this rate decision.
Key quotes
“We see potential for USD/TRY to trade within a wide range of 7.90-8.50 in the coming days. The risk of a sizable rate hike next week (19 November) is likely to keep USD/TRY below its all-time highs from last week (of 8.57-8.58). Meanwhile, USD/TRY downside will likely be limited as long as investors remain intrigued about the possibility of a material market-friendly shift in economic policies.”
“Investors already expect a large rate hike in the entirety of the central bank’s policy interest rate structure at the central bank’s meeting next week – perhaps in a move that lifts the upper end of the interest rate corridor by 400bps-500bps (to a new level of around 19%-20%). If this is correct, investors would consider a decision by the central bank next week to raise rates much less sharply (for example by 200bps) insufficient and an argument against the idea that the recent change of personnel marks a policy shift. In such a scenario we think USD/TRY would rebound by about 2%-3% initially – i.e. to around the 8.35 area from the close of Tuesday’s levels. Markets would then probably look to take USDTRY to new all-time highs.”
“A rate increase of 500bps or more would pave way for an initial drop in USD/TRY to the lowest level seen before the central bank’s policy meeting on 22 October, a level of around 7.78. Under these circumstances, investors would look to buy the lira as they would expect real rates to be elevated enough to create meaningful improvement in the current account and in the outlook for inflation. In other words, a rate hike of about 500bps would lead investors to look for a repeat of the favorable lira-dynamics that played out in the months after the large rate hike in September 2018.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD could extend the recovery to 0.6500 and above
The enhanced risk appetite and the weakening of the Greenback enabled AUD/USD to build on the promising start to the week and trade closer to the key barrier at 0.6500 the figure ahead of key inflation figures in Australia.
EUR/USD now refocuses on the 200-day SMA
EUR/USD extended its positive momentum and rose above the 1.0700 yardstick, driven by the intense PMI-led retracement in the US Dollar as well as a prevailing risk-friendly environment in the FX universe.
Gold struggles around $2,325 despite broad US Dollar’s weakness
Gold reversed its direction and rose to the $2,320 area, erasing a large portion of its daily losses in the process. The benchmark 10-year US Treasury bond yield stays in the red below 4.6% following the weak US PMI data and supports XAU/USD.
Bitcoin price makes run for previous cycle highs as Morgan Stanley pushes BTC ETF exposure
Bitcoin (BTC) price strength continues to grow, three days after the fourth halving. Optimism continues to abound in the market as Bitcoiners envision a reclamation of previous cycle highs.
US versus the Eurozone: Inflation divergence causes monetary desynchronization
Historically there is a very close correlation between changes in US Treasury yields and German Bund yields. This is relevant at the current juncture, considering that the recent hawkish twist in the tone of the Federal Reserve might continue to push US long-term interest rates higher and put upward pressure on bond yields in the Eurozone.