A powerful roller coaster on the Turkish lira course

The Turkish Lira has regularly depreciated against major currencies such as the Euro and the Dollar over the last decade. However, this trend has clearly picked up in recent months. Within a decade, the USD / TRY and EUR / TRY exchange rates grew by a total of nearly 1000%however, half of this movement has taken place since September. What is really going on here?

From + 10% to -23%, in one day

The scale of the lira weakening was alarming and could shock, although the very direction of the exchange rate changes was not. After all, the policy of the President of Turkey, Recep Erdogan, who decided to fight with galloping inflation (21,31%) lowering interest rates (recently from 19% to 14%), and regularly surprised his politicians with changes, it could not have ended otherwise. The daily weakening of TRY by 5-7% has become the standard of recent weeks, and the Turkish currency has started to be called "Erdocoin", thus referring to the enormous volatility of the cryptocurrency market.

Yesterday, however, was different. Initially, even as standard, the lira again lost 5%, 7%, and finally it reached 11% against the euro and the dollar. However, from 17:30 pm there was a turnaround and in just 2,5 hours the rate fell by -30%. This is the biggest TRY course shift in history.

USD / TRY chart, D1 interval. Source: xNUMX XTB.

Today is hardly a more peaceful day. In the morning the lira gained another 19% versus the dollar, but only for a moment, because from the designated local low, the rate soared upwards to… + 30%.

USD / TRY chart, day after the crash, M30 interval. Source: xNUMX XTB.

The reasons for the strengthening of the Turkish currency should be found in the statement of President Erdogan, who announced the "recovery plan". A key element is to be the introduction of government guarantees for deposits. This is because Turkish citizens will be compensated if their money held in lira will lose value in relation to foreign currencies. This is to persuade Turks to stop the exchange of domestic currency with foreign currency (the so-called dollarization).

Erdogan said:

“We present a new financial alternative for citizens to alleviate their concerns about the rising exchange rate. Thanks to these interest rate cuts, we will see inflation drop in the coming months. Our country will no longer be a paradise for those who get rich on high interest rates. "

This slowed down foreign speculators and, according to Reuters, Turkish banks that sold over a billion dollars after Erdogan's speech. The problem is that no particulars were made from the president as to how the support program for the Turks would be financed. On the contrary, from the recent comments one can conclude that he will continue to staunchly defend his strategy aimed at further interest rate cuts. This is certainly not the end of the story, and this roller coaster has finished its run.