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The lira briefly extended its gains after Turkey increased currency swaps with the Qatari central bank by $10B to $15B, signaling the move was fully priced in by the market. More FX swaps with other Central banks would only postpone the bullish action on the USD/TRY, according to the Rabobank economist team.

Key quotes

“To expect the corrective pullback in USD/TRY to extend further in the near-term, Turkey would have to successfully conclude talks on FX swaps with other central banks. Newswires are mentioning the BoE, the BoJ and the PBoC.” 

“To mark 7.2690 as the 2020 top in USD/TRY, a proper bazooka is required: Turkey would have to secure currency swap lines with the Fed and/or the ECB. Meanwhile, both central banks have reportedly rejected Turkey’s request.”

“It is important to emphasise that Turkey’s quest for currency swap lines cannot be a substitute for economic reforms to address structural issues which underpin the long-term upside trend in USD/TRY. Without ambitious reforms, USD/TRY is likely to set another all-time high. FX swap lines can delay this bullish process, but will not prevent it.”