MUFG Bank analysts point out that the Turkish lira has benefited from a general improvement in sentiment towards emerging markets. They forecast USD / TRY at 6.9 in the second quarter and 7.2 in the fourth quarter.
“The lira had another volatile month, with the USD / TRY hitting a new high of 7.2690 on May 7 before launching an impressive rebound. The biggest read bounce since May / June of last year. The lira took advantage, alongside other hard-hit emerging market currencies, of the widening sale of the US dollar. Capital flows to emerging markets have improved since the Fed took aggressive action to dampen the strength of the US dollar and support the US economy. “
“The Lire took advantage of the recent Qatar agreement to extend the foreign exchange swap line from $ 5 billion to $ 15 billion. This has helped at least temporarily to allay concerns over the sharp drawdown of Turkey’s foreign exchange reserves. “
“The developments have proven sufficient to alleviate the selling pressure of books in the short term. However, doubts remain about the sustainability of recent gains. The CBoT continued to ease monetary policy, expressing concern about demand and the risk of falling inflation. Their inflation forecast this year was lowered to 7.4%. However, the overall inflation rate remained significantly higher, at 11.1% in April. It leaves the real policy rate adjusted for inflation deep in negative territory. The CBoT continues to implement frontloading plans for purchases of government bonds. Under these circumstances, we expect the lira to weaken over the next year. “