The value of the lira in the week of ‘crucial data releases’

The United States dollar/Turkish Lira rate has eased to 4.46 after a series of rate hikes, but how long the exchange rate will stay at this level is just a guess. The most curious issue in the short term is the course exchange rates will follow at a time when elections are drawing near. This will be a “heavy week” with some crucial economic data being revealed. Those data releases and decisions to be announced will play a key role in setting the course for exchange rates.

Within the past two weeks, the Central Bank has delivered consecutive rate hikes that could be described as “shocking hikes.” The current level of exchange rates is a subject for debate. The related ministers made statements last week that said the lira was the best performing currency. However, the lira has been the worst performing currency since the beginning of the year.

Moreover, they do not say the lira gained value only after a 3 point rate hike delivered at an emergency meeting and another surprise 1.25 percent hike on June 7. The ministers do not mention that if smaller hikes had been delivered earlier in a timely manner, current exchange rates could have been achieved and further rate hikes are unlikely.

At the end of the day, it has been a costly move and the U.S. dollar/lira rate ended the week below 4.50. Market participants do not expect the currency rate to ease below 4.45. The decisions to be announced this week by three major central banks will impact emerging market currencies, including the lira. Moreover, the Q1 GDP data for the Turkish economy, other local data, and statements made by officials, which may affect the economy, will also set the course for the lira.

The U.S. Federal Reserve’s (FED) June meeting is set to start on June 12 and the FED will announce its rate decision on June 13. The FED is expected to hike rates at the upcoming meeting and the accompanying statement will include elements that will affect the value of the dollar.

Crucial decisions 

The European Central Bank (ECB) is expected to clear its plans regarding bond purchases in the meeting scheduled for June 14. The Bank of Japan’s (BoJ) rate setting meeting will start on June 14 and the bank’s rate decision will be out on June 15.

To summarize, the FED is expected to lift its rates, the ECB is expected to detail its plans to stop the bond purchase program and the BoJ is expected to make a decision to continue its stimulus program.

If the FED ops for a rate hike, it will be the second hike this year and the meeting will provide hints about future rate hikes. The ECB meeting may herald the end of monetary expansion in Europe. All those will probably signal that investors from developed nations will exit emerging markets such as Turkey. Therefore, the decisions to be made by those central banks will affect the value of all currencies, including the lira.

Turkey’s GDP growth data for the first quarter will be announced this week. In a period where the economy has protected the livelihood of its production, it is expected that the growth rate will be announced at around 7 percent for the first quarter.

In summary, exchange rates have declined to a level that is still deemed high. It is unclear what will happen next. The Central Bank is late to respond and it is unknown whether the front-loaded rate hikes will defend the value of the lira.

*The Turkish Statistics Institute (TÜİK) announced on June 11 that the Turkish economy expanded by 7.4 percent in the first quarter of this year compared with the same period last year.