The Turkish lira remained on edge on Monday as the political crisis in the country continued after more politicians, journalists, and activists were arrested. The USD/TRY exchange rate was trading at 37.7 on Monday, down from last week’s high of 39.80.
Lira plunges against euro and pound as BIST 100 index falls
Similarly, the EUR/GBP pair dropped to 41.20 from the year-to-date high of 43.40, while the GBP/TRY has dropped from last week’s high of 50.90 to 49.10. These forex pairs are all nearing their all-time highs after decades of soaring as the BIST 100 index has plunged by over 14% from its highest point this year, meaning that it has moved into a technical correction.
The Turkish lira has plunged after President Recep Erdogan arrested Ekrem Imamoglu, his main rival and the mayor of Istanbul. This action, coupled with other arrests, have raised concerns that Turkey was moving towards outright autocracy.
Ekrem has now been charged with corruption and removed from being the mayor of the biggest city in the country. In an X post, he warned that the country was suffering from a great betrayal and that he was a victim of extrajudicial execution.
Analysts believe that the ongoing arrests stem from last year’s municipal elections in which the opposition won convincingly. As such, Erdogan believes that failure to crack down on the party risks his party in the next election.
Önce Suriye’de eski rejim artıklarının çıkardığı olayları bahaneyle mezhepçilik fitnesini alevlendirmek istediler.
Alevi canlarımızı kışkırtarak kardeşliğimize pusu kurmaya kalktılar.
Muvaffak olamayınca bir yolsuzluk operasyonu üzerinden milletimizi provoke etmeye kalkıştılar.
CBRT interventions to save Turkish lira
The Turkish lira’s crash has not been all that severe because of the Central Bank of the Republic of Turkey (CBRT) actions.
As we wrote on Saturday, the CBRT has spent a record $12 billion defending the currency last Wednesday. Analysts believe that these interventions increased on Thursday and Friday as more foreign investors dumped Turkish assets.
The USD/TRY, GBP/TRY, and EUR/TRY also reacted to further actions by the CBRT. In addition to direct market interventions, the central bank hiked interest rates, bucking its recent rate cutting cycle.
Hiking interest rates helped to convince investors to save money in local currency instead of moving them to the US dollar, euro, and pound. Turkish bond yields have continued in the past few days, higher than the 4% in the US. The ten-year yield rose to 31%, up from the year-to-date low of 25%.
Therefore, the rising Turkish yields will likely create a carry trade opportunity. This situation is where investors borrow from a low-interest-rate country like the United States and invest in higher-yielding ones like Turkey.
USD/TRY technical analysis
The daily chart shows that the USD/TRY pair surged to a record high of 39.80 last week and then pulled back to 38. It has now stabilized at 38 as investors wait for the next catalyst from the country.
The USD/TRY has remained above all moving averages, a sign that bulls are in control for now. It is also forming a bullish pennant pattern. Therefore, it will likely continue rising as bulls target the psychological point at 50. A drop below the support at 36.50 will invalidate the bullish view.
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