CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Regulator:

×
CySEC

Skilling Ltd, is regulated by the Cyprus Securities and Exchange Commission (CySEC) under CIF license No. 357/18

Continue
FSA

Skilling (Seychelles) Ltd, is authorized and regulated by the Financial Services Authority (FSA) under license No. SD042

Continue
Market Insights

USDTRY insanity

Blog Images - Skilling (1).png

We touched on President Erdogan’s unconventional monetary policy a couple of weeks ago, and it’s DEFINITELY time to revisit!

Take a look at this weekly USDTRY chart

USDTRY chart

You can see that something has happened, but it’s hard to put that chart into proper context. As recently as September, one US dollar was worth nine Turkish Lira. In the space of six weeks that essentially doubled. You would need as much as 18 Turkish Lira to buy one dollar.

Until yesterday that was! President Erdogan announced extraordinary measures to halt the Lira’s slide. The government will now cover any losses incurred by holders of lira deposits if the lira’s decline against ‘hard’ currencies exceeds the interest rates they could receive in Turkish banks.

“From now on, none of our citizens will need to switch their deposits from the Turkish lira to foreign currencies because of their concerns that the exchange rate fluctuations might wipe out gains from interest payments”

The market was definitely caught off guard by the announcement:

USDTRY chart 2

An enormous liquidity gap that saw TRY move from over 18 to just under 12 in two and a half hours. A gain of ~35% for the Turkish lira!

The story is far from over however.

It’s not just gains from interest rate payments the people are worried about. The instability of the lira risks permanently undermining confidence in the currency, and markets aren’t convinced this is anything more than a temporary solution.

Erdogan insists that he will persist with the ‘new economic model’ that seeks to capitalise on low rates to reduce inflation:

“Of course we know that price rises are causing problems in the daily lives of our people. Of course we are aware of the volatility in the exchange rate, the instability in prices and the uncertainty this creates,”

“But we will resist these just as we resisted tutelage, terrorist organisations, putschists and global power barons. I am telling you, there is no going back. Don’t expect anything else from me,”

Erdogan has even invoked religion and referenced the Islamic proscriptions of usury:

“As a Muslim, I’ll continue to do what is required by nas,”

(Many Muslims believe that Sharia prohibits the earning of interest on loans, known as riba)

So the policy of pushing rates lower will continue, and the instability will deter foreign investors. Which begs the question…

Who funds the difference?

And the answer would seem to be… everyone! Turkey’s fiscal position is relatively strong. Now that’s on the hook to ‘pay’ for the depreciation of the lira further down the line, so the costs of this monetary adventure will likely fall on the country as a whole.

Ultimately, inflation is still way above the rate of interest (over 20% inflation vs 14% interest rate), and this gap looks set to widen. Due to the currency depreciation, inflation should stay high, while Erdogan eventually wants to bring rates down to zero.

He’s also (understandably) coming under pressure with the opposition calling for early elections.

Many analysts are saying this is merely a brief respite and the fireworks will resume in fairly short order. One thing’s for sure, trading the Turkish Lira is not for the faint-hearted!

Not investment advice. Past performance does not guarantee or predict future performance.

Related Articles

Challenges for the global economy

There are some enormous challenges facing the global economy right now. Many are unfamiliar challenges that have not bee...

Luna & the Terra attack

Another action-packed weekend for crypto and the zeitgeist was dominated by a reported attack on Terra’s USD peg (UST), ...

Stock of the week: AMD

Sifting through the market wreckage, there’s a lot of damage to some high growth names. Rising costs meeting low profita...

Important notice

This page/website is not directed to EU clients and falls outside the European regulatory framework and is not in the scope of (among others) the Markets in Financial Instruments Directive (MiFID) II.
By continuing you acknowledge to view the content provided by Skilling (Seychelles) Limited, which is authorised and regulated by Seychelles Financial Supervisory Authority, and that your decision was made independently and at your exclusive initiative and no solicitation or recommendation has been made by Skilling or any other entity within the group.

Continue

Important notice

This page/website is not directed to EU clients and falls outside the European regulatory framework and is not in the scope of (among others) the Markets in Financial Instruments Directive (MiFID) II.
By continuing you acknowledge to view the content provided by Skilling (Seychelles) Limited, which is authorised and regulated by Seychelles Financial Supervisory Authority, and that your decision was made independently and at your exclusive initiative and no solicitation or recommendation has been made by Skilling or any other entity within the group.

Continue