Turkish Lira (TRY) Risks Collapse as Erdoğan Leads in Presidential Runoff

Turkish Lira (TRY) Trades Near Record Low

The Turkish Lira (TRY) is facing resistance this week after neither standing President Recep Tayyip Erdoğan or his rival Kemal Kılıçdaroğlu secured an outright majority in the first round of Turkey’s presidential election.

Over the weekend, the country went to the polls with a record-high turnout to choose the next president. However no candidates were able to secure at least 50% of the vote.

The resulting uncertainty saw the the Lira strike a fresh record low against the US Dollar (USD) and plunge almost 1% against the Pound (GBP) at the start of the week. GBP/TRY traded at around ₺24.6347, just shy of an all-time high on Monday. While at the same time USD/TRY hit a new record level of ₺19.6649.

TRY investors were nervous about the possibility of protracted political uncertainty, as a second round of voting would leave the country in limbo for another two weeks.

Turkey’s election board has since confirmed a runoff will be held on 28 May.

The prospect of a victory from Erdoğan is also weighing on the Lira. After securing 49.51% of the vote over Kılıçdaroğlu’s 44.88% share, Erdoğan goes into the runoff as the clear favourite.

Erdoğan, time as President has coincided with the collapse of the Lira in recent years. The President essentially seized control of the Central Bank of the Republic of Türkiye (CRT) and slashed interest rates despite soaring inflation – a move that flies in the face of economic orthodoxy.

Another worry is that the tightly contested election could lead to civil unrest.

Turkish Lira Forecast: Does a Erdoğan Victory Pose the Greatest Risk to TRY?

Looking forward, TRY exchange rates could experience extreme volatility in the coming days. Markets will be watching the election results closely, as well as the response of the electorate.

If Erdoğan wins, worries about his unorthodox approach and tightening grip on power could dent the Lira. However, investors could be relieved if his victory leads to stability and certainty.

A presidential runoff could leave the Lira languishing at record lows for the next two weeks as markets await the second round of voting.

Perhaps the worse outcome for the Lira would be if the election results lead to a flare-up of violence and unrest. Clashes between both sides of the political divide, or between angry citizens and security forces, could unsettle TRY investors.

Furthermore, if Erdoğan loses but refuses to cede control then the potential for even greater political turbulence could see the Lira plumb new lows.

Samuel Birnie

Contact Samuel Birnie

Do Not Sell My Personal Information