USD/TRY monthly chart
The plunge in the lira to fresh record lows against the dollar is one of the more interesting events in markets this week, considering the lack of appetite as we wait on the Fed next week. USD/TRY has gone parabolic and is up over 7% again today to above 23.00 as the Turkish currency continues to implode.
The initial plunge came after Erdogan was re-elected as Turkish president but things have only gotten worse after the country’s net foreign exchange reserves turned negative again for the first time since 2002.
Erdogan’s victory has not gone down well with markets and even with his willingness to perhaps make changes to recent economic policies, the currency is not finding any relief. In any case, pardon me – and probably everyone else – for reserving some skepticism for a man that tends to do things as he pleases and without thinking at times.
The risk to Erdogan’s “promise” is that he could just as easily reverse course on any decision, and that isn’t something that will go down well with investor confidence.
In any case, he appointed Mehmet Şimşek as treasury and finance minister – someone who at least has a favourable reputation in markets. But then Şimşek’s first move today is to restore so-called ‘rational’ economic policies, in which traders are speculating that it would mean loosening controls put in place to slow the lira’s decline.
As such, that is leading to an exacerbated plunge in the currency, more so than it already has in the last week. Pain.
In this kind of market, the rout ends when it ends. It doesn’t pay to catch a falling knife.