View from the dealing floor. Tarik Chebib works on IG’s dealing floor in London. Trade forex with the UK’s No.1 retail FX provider here.
2013 was a challenging year for the Turkish lira. USD/TRY was valued at 1.7835 at the beginning of January and had depreciated in value to 2.1493 by December 31 – more than 20% in just one year.
The reasons are varied but all point towards the same challenges. The problems for Turkey started when fighting picked up in the troubled area along the border with Syria. The country finds itself trying to balance a humanitarian act of hosting over 0.5 million Syrian refugees while trying to protect its borders from a conflict that threatens to spill over the border. For most part of 2013, this has worked out well with only a few reported incidents.
Despite the geopolitical pressure, Turkey posted an impressive GDP increase of 4.4% in the third quarter of 2013. Nevertheless, manufacturing confidence has declined from 107.5 in October to 104.5 November.
Industrial Production has taken a severe hit too, in October it came in at 0.7% from 5.8% year-on-year. There are signs adding up that the economy may be running out of steam.
Negative economic data has been further aggravated by a series of political challenges. The integrity of the Prime Minister Erdogan’s government has been questioned with the latest graft probe seemingly involving high ranking officials. At this stage it can only be guessed how many people are involved and what the ramifications for Turkey – and the economy will be.
In 2013, the performance of the US dollar very much depended on the improving economy but recently, even more so, on the taper talk. The Fed’s decision to start tapering last month has directly led to a stronger US dollar.
So, for the immediate future of USD/TRY there are two main drivers, aside from the usual economic data releases. The extension of the political crisis in Turkey and the Fed’s future decisions regarding the tapering process will both have a major impact on the currency pair.
If the US economy continues to strengthen and the Fed ramps up its tapering efforts more drastically than the market expects, the advancement of the dollar could be supported further.
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