The Turkish lira has been by far the weakest EM currency today. Looking for reasons standing behind such underperformance one needs to point to a risk-off mode as well as adverse political reports from Turkey. Namely the TRY’s depreciations has sped up following the news regarding a possible breakdown of Erdogan’s alliance. The MHP leader informed that it is not going to cooperate with the Recep Erdogan’s AKP in local elections scheduled for March 31, 2019. Let us remind that the MHP has been the major coalition party. The Erdogan’s AKP sided with the MHP in the most recent general elections and both were expected to do the same in the local election next year. There is uncertain whether the two parties will end its alliance in the parliament as well. It needs to be said that the AKP will be stripped of a majority if the MHP leaves the coalition.
The TRY has been falling this year due to lacklustre macroeconomic data (including runaway inflation) and detention of a US pastor which was released earlier this month. The latest steps taken by the central bank in conjunction with a release of the pastor Brunson restored some credibility to the Turkish currency and helped wipe off almost a half of this year’s losses. This Thursday could be another important day for the lira as the CBRT meeting takes place. However, no changes in rates are expected this time around.
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The USDTRY has moved to the 61.8% retracement of the recent rally begun in July this year. However, the price has been unable to break through this level thus far. Today’s political revelations are contributing to the ongoing pullback pushing the pair above 5,87. Source: xStation5
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