The Turkish Lira is still under full devaluation pressure. Last Thursday we reported on the “actual” weakness of the Lira. This was because the US Dollar (clearly visible in the currency basket Dollar Index) had fallen very strongly in the last few days. If the US Dollar is concerned, the Lira would have had the very best opportunities to appreciate. But no, the US Dollar vs. the Turkish Lira rose, so the Lira depreciated. (USDTRY rose from 5.75 to 5.95 in December)
Turkish Lira before devaluation due to higher inflation?
The Dollar vs. the Turkish Lira was at a high of 5.95 last week. Now the exchange rate is back at this high and the market seems to feel that it wants to rise further (Lira devaluation). Tomorrow morning, Friday at 9am, the Turkish Statistics Authority will release the data for consumer prices in Turkey for the month of December. According to market expectations last week, inflation is expected to rise to over 11% in December. This compares to 10.56% in November and 8.55% in October. At the same time, President Erdogan continues to push for further rate cuts.
This would be a good breeding ground for a further devaluation of the Turkish lira. Now it’s all up to the statisticians tomorrow. Will they report an inflation rate above 11%? Then the Lira could fall further. Could, not must! Because don’t forget: in recent months, according to statistical data and decisions by the central bank in Ankara, the Lira has often behaved differently than one might have expected. So, caution remains necessary. We should take a close look tomorrow morning.
New Japan shock?
We remember. In August 2019 there was a flash crash for the Turkish Lira, which was triggered by gamblers in Japan. The Lira lost very quickly, so that the exchange rate USDTRY rose to as high as 6.34. Then the exchange rate also went back down again very quickly. Recent reports suggest that Japanese gamblers are currently in a very bullish position for the Lira, i.e. betting on a rising Turkish Lira. Should the Lira fall further, they could be forced to close long positions in the Lira. This could accelerate a possible depreciation of the Lira through margin calls (problems due to insufficient security deposits). This can happen, but does not have to happen. (our comment)