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August 18, 2022

Shock: Best Pair to Buy?

Michael J. Donoghue
Shock: Best Pair to Buy?

News for USD/TRY

Today, Turkey’s citizens and the financial world received astonishing news: Turkey’s central bank, the Central Bank of the Republic of Turkey (CBRT), decided to lower interest rates amid an inflation rate just shy of 80% year-over-year. The CBRT cut rates by a full percentage point, down to 13% from the previous 14%. Most orthodox economists appear to be baffled by this act of stimulus as Turkey grapples with a years-long economic crisis that has burdened the country with stagflation and a rapidly depreciating lira. Thus, it is almost universally regarded as a complete monetary misstep, as reflected in USD/TRY currently soaring 0.62% intraday.

Shock: Best Pair to Buy?

Erdoğan’s Economics

This dovish decision appears to be due to a concerted effort by Turkish President Recep Tayyip Erdoğan to influence the CBRT and deter them from their policymaking responsibilities. He has frequently tried to force their hand into preventing hawkishness, referring to interest rates as “the mother of all evil.” There are multiple factors contributing to this unique position of his, including esoteric views on the effects of interest rates (it is well documented that he believes interest rate hikes somehow cause inflation) and religious convictions. Given the ideological rationale behind these stances, as well as his increasingly authoritarian leadership, it is unlikely the CBRT will be able to pivot towards practical hawkishness anytime soon.

Shock: Best Pair to Buy?

EdgeFinder Analysis

According to the EdgeFinder, A1 Trading’s helpful market scanner for those desiring supplemental analysis, USD/TRY remains the top-rated pair for bulls. Earning a score of 5, or a ‘buy’ signal, USD beats TRY in every listed category besides GDP growth and interest rate divergence. However, given Turkey’s rampant stagflation issues that have only been exacerbated by recent high energy costs, as well as ‘real’ interest rates in Turkey being estimated at -16%, USD/TRY appears to have buying potential for the foreseeable future.

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