The USD/TRY exchange rate has recently peaked at 90-day highs near 42.19, reflecting a 1.8% increase above the three-month average of 41.45. The rate has remained stable within a 3.9% range, fluctuating between 40.61 and 42.19. Analysts note that the recent strength of the US dollar has begun to show signs of faltering, primarily due to concerns about potential overreactions in Federal Reserve interest rate expectations and looming issues related to a possible US government shutdown.
Market sentiment around the USD is currently influenced by several critical factors. The anticipated Consumer Price Index (CPI) report, expected to show a 0.3% rise in core prices, is likely to play a significant role in shaping the Federal Reserve's future decisions on interest rates. Additionally, ongoing US-China trade tensions continue to create an uncertain backdrop, particularly with a tariff negotiation deadline approaching. Furthermore, the ongoing trend of dedollarization among several countries could keep downward pressure on the dollar's valuation.
In contrast, the Turkish lira has experienced notable turbulence. The termination of Turkey's foreign exchange-protected deposit scheme has raised concerns, as this program had been a significant financial burden on the economy. Recent reports indicated a sudden surge in inflation to 33.3%, which challenges the central bank's recent rate cuts and raises questions about future monetary policy adjustments.
The European Bank for Reconstruction and Development (EBRD) increased Turkey’s GDP growth forecast, citing improved financial conditions despite inherent political instability risks. Additionally, a recent currency swap agreement between the UAE and Turkey, valued at $4.9 billion, aims to strengthen local currency liquidity but may not be enough to offset the underlying economic challenges the Turkish lira faces.
Market experts will likely continue to monitor these developments, as the interplay between US dollar strength and Turkish economic conditions will weigh heavily on the USD/TRY exchange rate in the near term.
