Turkish lira in historic performance after 7-month consecutive rise against dollar

Published 10.09.2017 22:02
Updated 10.09.2017 22:05

After rising against the dollar in February 2017, the Turkish lira has been spiking against the greenback seven months in a row for the first time since it became convertible in 1989. The currency increased by 8.49 percent during the February-August period this year. The performance of the lira has trod new ground as it gained value against the dollar for seven consecutive months. Having been negatively affected by the tension between the U.S. and North Korea and by the fact that data disclosed in the U.S. failed to meet expectations, the dollar continues to depreciate against the lira as a result of the tight monetary policy followed by the Central Bank of the Republic of Turkey (CRBT).

As the lira soars and the possibility of an interest hike by the U.S. Federal Reserve (Fed) wanes, the dollar-lira exchange rate fell by 1.9 percent in August and reached its lowest level in nine months at 3.3999 on Friday.

According to experts, although the Fed increased interest two times this year, the possibility of a third hike has declined due to low inflation in markets, which has accelerated depreciation of the dollar against other currencies.Meanwhile, when the reduced real return rates of financial investment instruments announced by the Turkish Statistical Institute (TurkStat) on the Consumer Price Index for August are examined, it is seen that the dollar depreciated by 1.86 percent in that period.

Pointing to the surprising resignation of Fed Vice Chair Stanley Fischer, strategist Cüneyt Paksoy noted that Fed Chair Janet Yellen's term would end in February 2018. He added, based on all this, that uncertainty stemming from the Fed's possible new steps in the coming period caused the dollar index to fall to 91.

Underlining that this dollar level has brought major maneuvering space for emerging currencies, especially for the lira-dollar rate, and that it has resulted in more valuable currencies against the greenback, Paksoy stated that the lira-dollar exchange rate has positively differed from other emerging currencies in the recent period thanks to the CBRT's tight policies, the government's commitment to reforms, and foreign perception that has begun to become positive.Paksoy expects the CRBT to maintain its tight monetary policy for a certain period after the disclosure of the latest inflation data. He added, "As the dollar index continues to remain at relatively low levels, we think that downward movements in the dollar-lira exchange rate may be possible and that it may follow a fluctuating course at least in a narrow band."

According to Paksoy, as the downward trend continues, levels between 3.30 and 3.35 will become more important as a new potential bottom. He argues that if current levels of the dollar hit bottom and make an upward attack again, the market must be more cautious against the lira's transition to a resistant position between 3.47 and 3.50 again after going through a cautious resistance period and rising for 200 days.KapitalFX Research Deputy Manager Enver Erkan said global pressure on the dollar has continued since the tension with North Korea and "dovish" statements by Fed members that highlighted the risks of interest rate hikes at the beginning of the week. He pointed out that the uncertainty about the Fed's monetary policy moves is growing and the possibility of interest hikes is diminishing day by day, stressing that Irma hurricane threatening South Florida has also challenged markets as a negative factor.

According to Erkan, the CBRT is not expected to launch any interest rate cuts or give a signal of this during the Monetary Policy Committee meeting on Sept. 14, following the inflation rate of 10.7 percent.

Stressing that the double-digit inflation figures will prevent the CBRT from interest rate cuts until the end of the year, Erkan indicated that second quarter growth data and current account deficit data would be monitored this week, while inflation and retail sales data will affect prices in the U.S.

The lira-dollar may fall to 3.38-3.36 levels, he added, indicating that the conjuncture against the dollar and interest rate differences in favor of the Turkish lira in the short term indicate that the exchange rate mainly shows a downward trend.


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