Turkish Lira Freshly Squeezed: Soaring Inflation And Erdogan

The tides are once again turning against the Turkish lira.

For a week, USD/TRY battled with resistance at its 200-day moving average (DMA). Over the last two trading days, the currency pair finally made new closing highs on the 200DMA breakout. USD/TRY faded after testing the highs from the last 200DMA breakout in July.

USD/TRY appears set to print a higher high as it breaks out above 200DMA resistance for the second time this year.

USD/TRY looks like it broke through the downtrend that has dominated trading all year. Thus, this 200DMA breakout seems ready to resolve differently than July’s which preceded a rapid return to the downtrend.

The changing tide is even more clear against the euro (FXE). EUR/TRY broke out to what I believe is a new all-time high.

The renewed weakness of the Turkish lira is seen much more clearly against the euro where EUR/TRY hit a new all-time high.

Source: FreeStockCharts.com

The latest catalyst came from soaring inflation numbers along with a reminder of Turkish President Recep Tayyip Erdogan’s refusal to acknowledge that inflation must be fought with higher interest rates.

According to Bloomberg, Turkey’s core inflation rate sits at its highest level in about 13 years:

“Core inflation, which excludes volatile items such as food and energy, rose an annual 11 percent through last month, the most since 2004 and outpacing all economists’ estimates in a Bloomberg survey, Turkstat said on Tuesday. The headline inflation rate also exceeded expectations, rising to 11.2 percent.”

Inflation in Turkey, almost never near the target of the Turkish Central Bank (CBRT), is soaring again.

Source: Bloomberg

Erdogan chose this moment to reiterate his belief that higher inflation does not need higher interest rates. Again from Bloomberg:

“‘High interest rates will never bring down the inflation rate,’ Erdogan told lawmakers in a televised speech on Tuesday, reviving an unconventional argument he has avoided for several months — but delivered hours after the latest data showed prices are soaring. “The current view is that they are inversely proportional. No, they are not. We have seen this.’”