Why the Turkish Lira Tumbles after Central Bank New Announcement?


Turkey’s lira continued declines after bouncing back more than 8 percent against the USD on Tuesday, as measures reported by the central bank demonstrated lacking to stem a defeat in the currency. Why the Turkish Lira Tumbles after Central Bank New Announcement?

15 August, AtoZ Markets – Turkey’s lira pushed higher for the second day consecutively after Turkey’s banking regulator tried to freeze foreign accounts out of selling the tottered currency. During morning trade in London Exchange, the lira climbed about 5 % to TL 6, still a horrendously weak level for Lira. The lira has recovered altogether from its bottom during Asia Pacific trade on Sunday of TL 7.21. 

Moreover, the Wednesday’s gains came after the Banking Regulation and Supervision Agency changed rules with currency swaps and other similar transactions including FX.

Why the Turkish Lira Tumbles furher?

President Recep Tayyip Erdogan has showed no clue of backing down in a Turkey standoff with the U.S. Also, promising to take essential steps, the central bank in Ankara lowered the amount commercial investor must park at the regulator and eased rules that govern how they manage their lira and foreign-currency liquidity. The President said that Turkey will never discard rules of a free-market economy.

Also he said the lira’s recent weakness is part of the economic war being waged against Turkey and has no economic basis. The national bank’s measures taken after an activity design plan declared by Treasury and Finance Minister Berat Albayrak late Sunday to react to the market tumult. He additionally dismissed capital controls as an alternative to stem outpourings of hard currency and pledged to take action against those he said were spreading negative rumors that deposits would be seized.

Damien Buchet, Finisterre Capital LLP stated:

“We have seen little sign of that for now, which keeps us on the back foot despite the high yields and low valuations offered on Turkish assets at present.”

Turkish banks regulator curbs FX dealings

Turkish banks will be constrained to going into any such exchanges with foreign counterparties where the movement surpasses 25 % of the bank’s administrative capital. In spite of the change in the course of the most recent two days, the issues that have driven the lira down about 40 % for the year to date have not meaningfully enhanced.

Chris Turner, head of FX strategy at ING said:

“Emerging market currencies remain very fragile as an asset class, with local policymakers struggling to contain losses.”

Also, the pressure is geographically diverse and could flash on several continents including Argentina, China and South Africa.

USDTRY market analysis: Will the Turkish Lira drop lower?

Yesterday, Aug 14th, on H1 timeframe USD/TRY broke below dynamic support level (EMA 50) and fell to 6.30 level. Today, Aug 15th, currency pair retested EMA 50 level in 6.5 area and continued bearish correction move. As of now major support level is 5.9-6.0 area, which correspond with EMA 200. If USD/TRY breaks below 5.9 support level, we could see bearish correction continuation at least to 5.5 zone, otherwise traders can expect currency pair to stay between 6 and 6.5 levels.

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