The USD to TRY exchange rate has recently shown significant movement, now at 90-day highs near 42.62, representing a 1.5% rise above its three-month average of 41.98. Analysts note that the USD has been pressured by a risk-on sentiment prevailing in the markets, as investors shift towards higher-yielding assets. This is primarily influenced by expectations that the Federal Reserve may cut interest rates sooner and more aggressively in 2026. A dovish stance from the Fed diminishes the USD's yield advantage, contributing to a downward trend in the dollar.
Economic data from the U.S. reflects mixed signals, with indicators showing cooling growth while the labor market remains relatively robust. This duality may limit the downside for the USD but overall supports a bearish outlook given the market's anticipation of rate cuts. If the Fed communicates hints toward easing, or if upcoming inflation prints are soft, further weakness in the USD could be expected.
In contrast, the Turkish lira (TRY) has faced its challenges. The Central Bank of the Republic of Turkey (CBRT) recently cut its policy interest rate by 100 basis points to 39.5%, indicating a shift in its monetary policy amid rising inflation concerns. Despite a reaffirmed inflation target of 16% for 2026 and 24% for the end of 2025, real inflation rates are anticipated to exceed these targets, putting additional pressure on the lira. A Reuters poll also suggests that Turkey's GDP growth is projected to fall short of government estimates, which may further contribute to the lira's instability.
Political developments have influenced the TRY's performance as well, particularly the arrest of Istanbul Mayor Ekrem İmamoğlu, which led to a jolt in the markets. The CBRT's interventions to stabilize the currency highlight the ongoing volatility.
With the USD experiencing downward pressure and the TRY facing persistent inflation and growth concerns, the USD to TRY exchange rate may remain elevated for now, but could fluctuate further depending on key economic indicators and central bank communications in the coming months. Investors and businesses engaging in international transactions should monitor these developments closely, as market dynamics continue to evolve.
