Introduction to the Turkish Economy
The Turkish lira has been experiencing a significant plunge this month, reaching its all-time low. The USD/TRY exchange rate rose to 41.15, up by over 41% from its lowest level in January this year. Despite the surge in the exchange rate, macro data shows that the country’s economy is doing relatively well.
Improving the Turkish Economy
Inflation has been a major issue in the past few months, but it has shown some improvement recently. The headline Consumer Price Index (CPI) dropped to 33.52% in July from 35% in June. Although the 33.5% inflation rate is still high, it’s notable that it has been in a downward trajectory for 14 consecutive months after peaking at over 70% in 2023.
The central bank’s decision to slash interest rates has also contributed to the improvement in the economy. The benchmark interest rate was cut to 43% in July, a 300 basis points cut, which has erased the 350 basis point increase in April. This move is expected to have a positive impact on the economy, and the upcoming Turkish inflation data will likely react to this change.
Upcoming Economic Data
The USD/TRY will react to the upcoming Turkish inflation data, which is expected to show that the headline Consumer Price Index fell from 33.5% in July to 32.6% in August this year. The monthly inflation figure is expected to come in at 1.79% from 2.06%, indicating that prices are moving in the right direction. Similarly, the Producer Price Index (PPI) is expected to come in at 23.5% from the previous 24.19%.
The upcoming Turkish GDP data on Monday is also expected to show that the economy expanded by 4% in Q2, up from 2% in the previous quarter. The finance minister expects the economy to grow by 4% this year, higher than the median estimate of 2.8% among analysts. Top credit rating agencies have also upgraded their credit rating, indicating a positive outlook for the economy.
Impact of US Dollar Index
The USD/TRY exchange rate has jumped, even as the US dollar index continues to plunge, moving from a high of $110 in January to $98. The pair is often seen as a good carry trade opportunity due to the interest rate differential between the United States and Turkey. With the US interest rates at 4.50% and Turkey’s being above 30%, investors are borrowing the greenback to invest in Turkey.
Technical Analysis
The daily timeframe chart shows that the USD/TRY exchange rate has been in a strong uptrend this year and is now hovering at its all-time high. It has constantly remained above all moving averages, while the Relative Strength Index is at the overbought level. This indicates that the pair will likely continue rising in the coming weeks as investors predict that the CBRT will continue cutting interest rates in the coming months.
Conclusion
In conclusion, the Turkish economy is showing signs of improvement, with inflation rates decreasing and the economy expected to grow by 4% this year. The USD/TRY exchange rate is expected to continue rising due to the interest rate differential between the United States and Turkey. The upcoming Turkish inflation data and GDP data will provide more insight into the economy’s performance, and investors should keep a close eye on these developments. As the economy continues to grow, the USD/TRY exchange rate is likely to reach new heights, making it an attractive investment opportunity for those looking to take advantage of the interest rate differential.
