At the beginning of the week, the Turkish Lira weakened against many of its most traded peers and fell to a new record low against the US Dollar as domestic concerns battered the currency.
Political infighting between the Turkish central bank and Turkish President Recep Tayyip Erodogan has weighed heavily on the Lira due to economists being concerned that the bank’s independence was at risk. Erdogan has been calling for the bank to aggressively cut interest rates ahead of the June elections. Adding to the currency’s woes is increasing speculation that the ruling AK Party could lose its majority in June elections.
Opinion polls released over the past few weeks have shown that Erdogan’s AK Party is losing support. Pressure was also on the Lira, because under Turkish law, the AKP’s three-term limit will prevent current Deputy Prime Minister Ali Babacan from running for parliament. Economists have claimed that Mr. Babacan is an integral part of Turkey’s economic management, and that his loss will have a detrimental impact on the economy.
The conflicts in Syria and Iraq have also added an air of uncertainty, with many fearing that the war against ISIS could spread to Turkey. Tensions in the Kurdish regions of the nation are already high. Over the weekend, four Turkish soldiers and five members of the outlawed Kurdistan Workers Party (PKK) were killed in a clash.
On Tuesday, the Lira managed to regain some ground against the US Dollar after the Turkish central bank said that it was considering intervening in the currency markets to help the currency.
Since January, the Turkish Lira has seen an 11% fall against the ‘Greenback’ and is set to remain under considerable pressure from expectations that the Federal Reserve will hike interest rates in the summer. If the Fed does hike rates then emerging market currencies like the Lira will decline further. With recent US data often-missing expectations, it remains unclear whether Fed policy makers will vote in favour of raising rates that soon. Some economists are predicting that rates may not rise until early 2016.
The Lira will likely make further losses as economists forecast that Wednesday’s Turkish unemployment data will show an increase. The jobless rate is expected to have risen from January’s figure of 10.9% to 11.2%.
The US Dollar to Turkish Lira exchange rate was trading in the region of 2.6677.