EUR/TRY drops on ECB and CBRT rate decisions
Fawad Razaqzada September 12, 2019 11:38 AM
The CBRT’s decision comes on the back persistent pressure from President Erdogan, who has been calling for lower interest rates for months – if not years – despite the runaway inflation.
The ECB was not the only central bank cutting interest rates today. The Turkish central bank also trimmed rates, but by a good 325 basis points – more than 250 expected. This comes on the back of the 425 bp cut in July. Following today’s cut, the key interest rates now stand at 16.50% in Turkey.
The CBRT’s decision comes on the back persistent pressure from President Erdogan, who has been calling for lower interest rates for months – if not years – despite the runaway inflation. At 16.65%, the Consumer Price Index in Turkey is among the highest for a developing economy.
With interest rates falling, some analysts think that inflation could accelerate again and cause more economic pain. As a result, the lira could come under renewed pressure, they argue.
However, for the time being, the beleaguered currency has actually responded positively to the rate decision, suggesting investors are more concerned about economic growth than inflation, supporting the view of the President.
Given (1) the TRY’s positive response to the CBRT’s rate cut, (2) the announcement of more monetary stimulus by the ECB today, (2) ongoing capital controls by the Turkish government, and (4) the ongoing “risk-on” sentiment, the EUR/TRY could be heading lower over the coming weeks, before the longer term macro factors come back to the forefront and undermine the TRY.The EUT/TRY has actually already formed a near-term peak when the spike above the 6.5000 handle on August 25 turned out to be just that – a spike. Since then, rates have been trending lower and now find themselves below the 200-day moving average. With this long-term average broken, the path of least resistance is now to the downside. We expect the exchange rate to decline and eventually test the prior lows around 6.1200 and possibly 5.8450 over the coming weeks.
Source: Trading View and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.