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Turkish Elections and Implications for the Lira as USD/TRY Eyes Fresh Highs


  • USD/TRY Eyeing Fresh Highs as Turkish Elections Deadlocked.

  • Turkish Election Set for Runoff in Two Weeks’ Time as Expectation Builds Around a Shift in Turkish Monetary Policy.

  • US Dollar and Debt Ceiling Talks Pose Downside Risks for USDTRY in the Short-Term.


Turkey has seen its fair share of struggles in 2023 not least of which was the earthquake suffered in early February. Early growth signals have since been largely positive for Turkey and yet when one looks toward the rest of year and beyond the situation is murky. The aforementioned coupled with the continued weakness of the Lira (TRY) since the covid-19 pandemic can be traced back to the ongoing monetary policy stance of current President Erdogan.

President Erdogan has faced criticism both locally and abroad as he went against the belief of scores of Economists who believe higher interest rates combat inflation. A quick view of the chart below gives an indication of the path of interest rates and CPI levels since President Erdogan began implementing his version of ‘monetary policy’. Frustration among citizens had been growing in the buildup to the election due to the higher cost of living and loss of savings, ramping up the pressure on President Erdogan.

As its stands the Turkish Election looks set to go to a runoff as no candidate won 50% of the votes in the first round. Current President Recep Tayyip Erdogan seeks to renew his presidential mandate and extend his nearly two decades at the top of Turkish politics.

The latest figures from state owned media Agency, the Anadolu Agency confirmed the lack of a 50% majority for either candidate with the official election authority, the YSK, agreeing that a runoff will be needed as things stand.

The closest challenge for President Erdogan comes from Kemal Kilicdaroglu who received around 43.12% of the votes compared to 49.4% for President Erdogan and is backed by several opposition parties. Mr Kilicdaroglu is a retired civil servant and has been the main opposition in Turkey for the better part of a decade. He is the leader of the Republican People’s party (CHP) and has led them to some major victories in key areas including Ankara, Istanbul and Izmir.


Turkish inflation has been the major concern over the past 24 months despite recent signs of a slowdown. April’s print came in at 43.4% YoY down from 50.5% a month earlier. The data did however indicate that price pressures remain uncomfortably high, while fears persist that a rise in inflation in the second half of 2023 could yet materialise. This has obviously increased the pressure on President Erdogan as a continued drop in inflation is likely to require a shift in policy to a significantly tighter monetary policy stance.

This is the main focus of market participants who no doubt feel that a change in leadership should result in a change in monetary policy as well. Erdogans challenger Mr Kilicdaroglu has already vowed that he would curtail the powers of parliament if he is to be elected.

The Turkish Central Bank meanwhile kept rates unchanged in April as expected with the Central Bank stating that the current monetary policy is adequate to support the necessary recovery in the aftermath of the earthquake. The Central Bank reiterated the need to keep rates low and financial conditions supportive while emphasising its alternative policy instruments and alignment of all policy instruments with “Liraisation” targets.

The Central Bank faces a challenging task of keeping the Lira steady as election data filters through. Volatility in the currency markets remain high as bond yields face continued upward pressure as market participants continue to look for changes in monetary policy which they hope will arise after the elections.


Looking at the bigger picture, volatility is expected to remain high over the course of the elections. USDTRY continues to tick higher with little in the way of price action to analyze as the moves have been so abrupt and volatile. Given that the elections did not yield a clear victor, any moves on USDTRY heading toward the runoff in 2 weeks could be US dollar driven.

In that case all eyes and attention needs to shift to developments around the US and the raising or suspension of the debt ceiling. The closer we get to the June 1 deadline the more volatility and uncertainty should be expected with short-term US yields likely to rise. An agreement on the debt ceiling is likely to exert some downward pressure on USDTRY while continued disagreements and the lack of a solution should continue to keep the US dollar supported in the near-term.

A continued rise in the US dollar or weakness from the Lira could see a new all-time high printed above the 20.00 mark. This isn’t a stretch given the current price around 19.70 and a daily high around 19.94. Downside support rests around 19.28 which line up with the 50-day MA and could support prices should USDTRY face some selling pressure.

USD/TRY Daily Chart – May 16, 2023

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Written by Zain Vawda, Analyst for DailyFX

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