Turkish Lira Climbs to Highest Level Against US Dollar Since August

The Turkish lira climbed to its highest level against the US dollar since August as the currency continues to find support from optimistic foreign exchange traders. Despite the bullish performance of the lira, inflation failed to show some improvements in January, with the readings coming in higher than expected. Can the central bank keep a lid on inflation and achieve its lofty objective?

According to the Turkish Statistical Institute (TSI), the inflation rate increased 14.97% year-over-year last month, higher than the median estimate of 14.68%. This was the highest inflation rate since August 2019, driven by a faster rise in prices for food, housing, water, utilities, and apparel. On a monthly basis, Ankara reported a 1.68% jump in inflation.
In January, producer prices also surged, with the producer price index (PPI) soaring at an annualized rate of 26.16% in January, up from 25.15% in December. This is the highest PPI reading since May 2019, led by spikes in manufacturing, mining, water, and utilities. Month-over-month, producer prices advanced 2.66%, slightly higher than the previous month’s 2.36% push.
Earlier this week, the Istanbul Chamber of Industry manufacturing purchasing managers’ index (PMI) rose to 54.8 last month, up from 50.8 in December – anything above 50 indicates expansion. The manufacturing sector reported stronger growth in output, exports, new orders, and employment. This was the eighth consecutive month of expansion in the manufacturing PMI.
The data highlighted the need for continued tightening of monetary policy, noted Fitch Ratings.

This change in policy was precipitated by lira weakness, FX pressure, a higher deposit dollarisation ratio, widening current account deficit and high inflation. Positive steps have been taken to improve policy credibility but this process will take time, as will rebuilding Turkey’s depleted foreign exchange reserves.

The central bank’s foreign exchange reserves have topped $50 billion only twice since the summer of 2020.
With the International Monetary Fund (IMF) recently forecasting that the Turkish economy would rebound 6% in 2021, investor interest in the lira has been reinvigorated. This year, the lira, which has been one of the top-performing currencies in forex markets, has strengthened to a six-month high against the greenback. Year-to-date, the lira is up close to 4% against its US peer.
The USD/TRY currency pair fell 0.51% to 7.1601, from an opening of 7.1934, at 13:43 GMT on Wednesday. The EUR/TRY tumbled 0.69% to 8.6110, from an opening of 8.6641.
If you have any questions, comments, or opinions regarding the Turkish Lira, feel free to post them using the commentary form below.

Original from: www.earnforex.com