- USD/TRY gains traction to near 37.95 in Tuesday’s early European session.
- The political crisis in Turkey continues to weigh on the TRY.
- CBRT interventions might help the Turkish Lira from depreciating.
The USD/TRY pair gathers strength to around 37.95 during the early European session on Tuesday. The Turkish Lira (TRY) weakens against the US Dollar (USD) as political turmoil in Turkey intensified.
The TRY has plunged after President Recep Erdogan arrested Ekrem Imamoglu, one of the country’s most high-profile politicians and President Erdogan’s key rival, on corruption charges. This move, along with other arrests, has raised fears that Turkey was moving towards outright autocracy.
On Monday night, large numbers of riot police joined protesters around Istanbul's city hall as they yelled and waved Turkish flags. The Turkish authorities said before late Monday that 1,133 people had been arrested since the protests began.
The upside for USD/TRY might be limited due to the Central Bank of the Republic of Turkey (CBRT) intervention to save the Turkish Lira. The CBRT raised the key overnight lending rate by 200 basis points (bps) to 46% during an emergency meeting last week and spent a record $12 billion defending the currency.
Investors remain concerned over a potential rise in inflation and recession in the United States ahead of US President Donald Trump’s reciprocal tariffs. Trump said late Monday that he will announce tariffs on automobile imports in the coming days and indicated that some countries will receive breaks from reciprocal tariffs on April 2.
Trump added that he planned to proceed with sector-specific tariffs on lumber and semiconductors and repeated his threat to impose duties on pharmaceutical drugs “in the very near future.” The uncertainty surrounding Trump’s tariff policies and fears of recession might exert some selling pressure on the Greenback against the TRY.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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