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The Turkish lira illustrates well the incorrectness of the notion that the Fed cutting interest rates to zero will ease the selling pressure on EM currencies in a sustainable way over the short-term horizon, according to analysts at Rabobank. USD/TRY trades at 6.409.

Key quotes

“USD/TRY continues to move higher amid growing concerns that foreign tourist arrivals will plunge in the coming months. This, in turn, could trigger a major slowdown or even another recession in Turkey.” 

“Governor Uysal faces a substantial dilemma as a rate cut would be a rational decision on Thursday given that the outlook for Turkey has suddenly deteriorated markedly. However, such a move would make the lira even less attractive.”

“It is a very tough call, but instead of a symbolic cut of 25bps or 50bps, it would be more efficient to keep rates unchanged to support the lira.”  

“ USD/TRY could be just days before the temperature reaches the boiling point and a proper move unfolds similar to the one witnessed in the summer of 2018.” 


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