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On top of fundamental vulnerability, the TRY is suffering from both domestic and geopolitical tensions, according to Morten Lund, Analyst at Nordea Markets.

Key Quotes

“The presidential election in June will most likely end with Erdogan staying in office for at least five more years, and with last year’s constitutional changes now coming into effect, Erdogan will increase his powers significantly and cement his nationalistic agenda and non-market friendly mix of both loose fiscal and monetary policy. A key to ensuring that markets do not lose completely confidence with the Erdogan and the government is that Deputy Prime Minister, Mehmet Simsek, does not resign as was rumoured in early April. In the eyes of the markets, he serves as a healthy counterpart to Erdogan.”

“Geopolitically, Turkey’s relationship has worsened towards the US and the rest of the Western world on matters like Syria, Iran and Israel. The geopolitical uncertainty has resulted in a risk premium on the TRY, which we do not expect will abate any time soon.”