Early Monday morning Turkey’s current president Recep Tayyip Erdogan announced he had won the contentious presidential elections, putting an even tighter grip on the position he has held for the past 15 years.
Currency markets had been anticipating the results
of this election since the beginning of last week, with the USD/TRY becoming
increasingly volatile as the week came to an end, with the USD/TRY options
showing a 3% jump in either direction when markets reopen on Monday.
The move wasn’t that strong, with the pair
trading 1.2% lower immediately following the election results, as Erdogan’s winning
is seen as providing ongoing stability for Turkey and its currency. That said,
some analysts believe the Turkish Lira could become increasingly volatile as the
week moves forward (Bloomberg.com).
It’s possible that now that Erdogan has
won, traders will begin to price in a reversal of the recent interest rate
hikes, which would reverse the gains for the Lira that are happening
immediately following the election results. Indeed, it could see the Turkish
Lira soon testing the historic May low of 4.925 per dollar.
Interest rates remain extremely high, with
the Turkish 10-year Treasury yielding 16.21% at last Friday’s close, but these
high interest rates have done nothing to move the Lira higher in recent months
or even years for that matter.
The Lira has been losing value against the
USD for the past four years, with losses accelerating rapidly since the start
of 2018, which could mean a pullback is looming and this election was the catalyst
needed to kick off the bounce.