Lira Fights Back But USDTRY Stays Up As Turkish Protests Heat Up

Summary:
• USDTRY has subsided significantly from last week's record highs, but political temperatures in Turkey and hyperinflation fears provide fuel.

USDTRY returned to the upside on Tuesday, as investors cast their lots on the US dollar amid rising political uncertainty in Turkey. The currency pair traded at 37.98 at the time of writing, having risen by 0.25%. Meanwhile, the momentum around the greenback is upbeat following news that the reciprocal trade tariffs scheduled for implementation starting April 2 could be less severe than previously expected.

Turkey has been experiencing one of its most violent street protests in history for the last six days, following the arrest of Istanbul Mayor, Ekrem Imamoglu, seen as a formidable challenger to President Recep Erdogan. The lira dropped to all-time lows of 40.49 last week as investors dumped the local currency for fear of a deeper decline.

The political turmoil has sparked fears that Turkey could find itself back into hyperinflation territory. At its peak, inflation reached 85% in 2022, forcing the Turkish central bank to raise interest rates to 50%. The effort, alongside other macroeconomic policy readjustments bore fruit, and in February, inflation rate went below 40% for the first time in two years.

The resumption of hyperinflation sentiment favours USDTRY to continue rising , but the Turkish central bank will likely intervene. The bank already sold $20 billion in the last week to support the lira. However, the rising political temperatures have subdued the impact of the intervention.

USDTRY Prediction

The momentum on USDTRY favours the upside to continue if the exchange rate stays above 37.85. That will likely see the the pair head higher and encounter the first resistance at 38.15. Breaking above that level will strengthen the upside momentum to potentially test 38.25.

Conversely, the pair will trade towards the downside if it breaches 37.85. With the sellers in control, the first support will likely be at 37.75. The upside narrative will be invalid if USDTRY breaks below that level. In addition, such momentum could potentially take the currency pair lower test 37.60.