Turkish lira collapses on high inflation as USD/TRY hits 31.5000

Data current as of 3/5/2024

Key points

• USD/TRY gained on inflation data: (0:50)
• Inflation in Turkey hits 67%: (2:40)
• Turkey’s recent inflationary trouble: (3:26)
• Will interest rates at 45% help?: (5:18)
• USD/TRY up 800% since 2017: (7:27)

USD/TRY gained on inflation data

The USD/TRY currency pair appreciated by 0.59% on Monday, setting new all-time highs above the 31.5000 mark. This significant uptick came in response to Turkey’s latest inflation data, indicating that inflationary pressures continue to affect the Turkish Lira. Such movements emphasize the sensitivity of forex markets to economic indicators, with traders closely monitoring inflation figures to adjust their trading strategies accordingly.

Inflation in Turkey hits 67%

Turkey's inflation rate surged to 67.07%, marking its highest level since 2022. This dramatic increase reflects ongoing economic challenges within the country, impacting the cost of living and the broader financial stability. High inflation rates devalue the local currency's buying power, and the instability from this hyperinflation is likely devaluing the lira in forex markets.

Turkey’s recent inflationary trouble

Turkey has been grappling with severe inflationary pressures in recent years; in 2022, inflation peaked at 85%, accelerated from a trajectory that began in late 2021. This trend underscores the persistent difficulties the country faces politically and economically, and diminishing the Turkish Lira's value against major currencies like the US dollar.

Will interest rates at 45% help?

In response to soaring inflation, Turkey's central bank has ramped up its monetary policy efforts, raising interest rates to 45%. This aggressive strategy aims to curb inflation by making borrowing more expensive, thereby reducing consumer spending and price increases. However, the effectiveness of these measures remains to be seen as the economy navigates through these challenging times.

USD/TRY up 800% since 2017

The USD/TRY pair has seen an astonishing 800% increase since 2017, when it traded consistently below the 5.0000 mark. This escalation is partly due to Turkey's hyperinflationary episodes, fundamentally altering the currency's value. The subsequent rise in interest rates has also impacted overnight borrowing costs in USD/JPY, spurring further one-sided price movement. Before the onset of inflationary issues, the USD/TRY exchange rate showcased much less volatility, reflecting a stark contrast to the current economic landscape.

How to trade USD/TRY

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on USD/TRY

Trading forex requires an account with a forex broker like IG. USD/TRY can be found under the 'Exotic' pairs tab. Many traders watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.