The Turkish lira continued its strong plunge this month, reaching its all-time low. The USD/TRY exchange rate rose to 41.15, up by over 41% from its lowest level in January this year.

Improving the Turkish economy 

The USD/TRY exchange rate has surged this year, even as macro data showed that the country’s economy was doing relatively well.

Inflation, which has been a major issue in the past few months, has made some improvement in the past few months. A recent report by the statistics agency showed the headline Consumer Price Index (CPI) dropped to 33.52% in July from 35% in June.

While the 33.5% inflation rate is huge, it is notable for two main factors. First, it has been in a downward trajectory for 14 consecutive months after it peaked at over 70% in 2023.

Second, the inflation plunge happened after the central bank slashed interest rates. It moved the benchmark interest rate to 43% in July, a 300 basis points cut. This cut means that the bank has erased the 350 basis point increase in April when political factors triggered a lira plunge.

The USD/TRY will react to the upcoming Turkish inflation data. Economists expect the report to show that the headline Consumer Price Index fell from 33.5% in July to 32.6% in August this year.

The monthly inflation figure is expected to come in at 1.79% from 2.06%, a sign that prices are moving in the right direction. Similarly, the Producer Price Index (PPI) is expected to come in at 23.5% from the previous 24.19%.

The other major catalyst for the USD/TRY will be the upcoming Turkish GDP data on Monday. Economists expect the upcoming report to show that the Turkish economy expanded by 4% in Q2, up from 2% in the previous quarter.

In a recent statement, the finance minister expects that the economy will grow by 4% this year, higher than the median estimate of 2.8% among analysts. Top credit rating agencies have upgraded their credit rating.

The USD/TRY exchange rate has jumped, even as the US dollar index continues to plunge, moving from a high of $110 in January to $98.

The pair is often seen as a good carry trade opportunity because of the interest rate differential between the United States and Turkey. With the US interest rates at 4.50% and Turkey’s being above 30%, investors are borrowing the greenback to invest in Turkey.

The other important catalysts for the USD/TRY exchange rate will be the upcoming US non-farm payrolls data, which is scheduled to be released on Thursday. This report will provide more information about the health of the labor market and influence the next interest rate decision.

USD/TRY technical analysis 

USD/TRY chart | Source: TradingView

The daily timeframe chart shows that the USD/TRY exchange rate has been in a strong uptrend this year and is now hovering at its all-time high.

It has constantly remained above all moving averages, while the Relative Strength Index is at the overbought level.

Therefore, the pair will likely continue rising in the coming weeks as investors predict that the CBRT will continue cutting interest rates in the coming months. If this happens, the pair will keep rising and reach 42.

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