Last month, the analysts were still pushing up the Turkish Lira until this currency hit an eight-month high against the dollar.
But it all change this month, due to series of political occurrences among the Turkish regime, together with a few critical changes in the global market that turn the Turkish currency into a problem.
It starts with the resignation of the Turkish prime-minister, Ahmet Davutogls, earlier this month, due to pressure from the side of the Turkish President, Recep Tayyip Erdogan, who try to strengthen his power even more and gain control over the political system of the country. These political occurrences drove investor out of the Turkish currency, and if it may have escalated, it apparently will keep the investors away. Tatha Ghose, a German analyst, said “an accelerated move towards presidential system will keep foreign investors edgy, and therefore the Turkish lira in under pressure”.
Even more than the political reasons, there were few good financial reasons to believe that the gains of the first quarter weren’t going to last for this currency. The first reason is the recent raising in the oil prices, from 30$ a barrel to nearly 50$. Turkey is one of the largest oil-importers of the world, so as long as the price of the oil was lower, like it was before few months, it took pressure off the lira. But now, when the prices is high, the pressure is back.
Also the uncertainty about the issue of the interest rate hike by the US Fed have implications on currencies like the Turkish lira. When the expectations to the interest rate hike were low the investors seek to invest into emerging markets, and went into the lira. But now, after the Fed governor announced recently that there is a good chance that the rate hike will occur in the next months, the expectations in the world increase again and the investors run back to the dollar, abandoned the Turkish lira investments.
The central bank of Turkey moves recently towards reducing interest rates, citing lower inflation and rising unemployment. The bank seems less willing to intervene in the currency markets, like it did through last year and early 2016 to prop up the lira. The investors worry about the central bank’s independence, due to the political changes in the country and the government’s desire to push for more stimulus, but for now it seems that central bank stays pretty independent and the pressure on the currency will keep on.