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Analysts at Nomura suggest that the 300bp TCMB rate hike may help to stabilise TRY temporarily (USD/TRY is up 7.5% since 14 May 2018), but Nomura remain concerned that this may not be sufficient over the medium-term in view of the political situation and challenging global EM backdrop.

Key Quotes

“In particular, the more recent TRY weakness looks to have been caused by substantial stop-loss selling of TRY/JPY margin positions with TRY becoming less popular with Japanese retail investors.”

“Because of ongoing EM stress, partly caused by rising US Treasury yields, stronger USD, and higher oil prices, we believe that vulnerabilities in EM will continue to grow and will only be exacerbated if TRY or any EM-specific weakness resumes or emerges.”