The Turkish lira fell to historic lows against the US dollar and the exchange rate USD/TRY has gained more than 26% over the past 12 months, scoring in recent days new records in “uncharted” area.
What are the reasons for the collapse of the Turkish lira? The currency market will react with force or with suspect? Here’s what’s happening in the dollar-lira.
USD / TRY: 1, the failed coup deters investors
The failed coup d’etat last July 15 was a key moment in the collapse of the Turkish lira: in just one day the USD/TRY had gained over 1300 pips and since then the trend has been the same. The rating of the turkish credit was cut to junk and Turkey does not attract any investors’ interests.
USD / TRY: 2, the US will increase the interest rate
The monetary policy pursued by the Federal Reserve is clear and, probably, by the end of 2016 Janet Yellen will announce a new rise of the interest rate. According to the facts, the rate of turkish interest at 7.5% is not enough to offset the outflow of capital to the US. Tomorroy the Turkish central bank will probably confirm this interest rate.
USD / TRY: 3, Turkey is crushed by import
Turkey imports about 92% of the raw materials it needs. The rise of the price of oil does not help its economy, but especially the collapse of the lira causes the increase in purchase costs of commodities and curbs the Turkish economy.