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Why Has the Turkish Lira Plunged and What to Watch For Today in the Markets?

Why Has the Turkish Lira Plunged and What to Watch For Today in the Markets?

European and US stock futures are trading higher, but traders are still fretting over rising inflation and soaring bond yields. But the fact that economic activity is still coming back to life is keeping traders are a lot more optimistic. Having said that, the fourth coronavirus wave in Europe, which has made several countries push back some of the easing measures in relation to coronavirus, is something that traders need to be mindful of.

Paris went back in lockdown on Saturday, and the prospects of having summer holidays abroad in the UK have also started to look less likely once again. Lawmakers in the UK have made a statement such as “we are not blind and deaf” in relation to what is going on elsewhere. Despite this, the hope is that the vaccination process will make things better in the coming days, and it will lift the odds of economic recovery becoming even better.

Lira

In the forex market, all eyes are on the Turkish Lira whose plunge has shocked investors today. The Turkish Lira has dropped nearly 19% after President Tayyip’s unexpected decision about the central bank‘s governor, Naci Agbal.

President Tayyip doesn’t want to favour higher interest rates as it makes economic conditions a lot more arduous in the country. Former US President Donald Trump also had a long history of playing with the Fed as well, and at the time, there were speculations that he may fire Jerome Powell, the Federal Reserve President. But nothing like that happened.

Nonetheless,  Trump was able to force the Fed’s hand and lower the interest rate. President Tayyip also wants a lower interest rate in the country so that economic growth can pick up more steam. But of course, a sudden decision like the one made over the weekend surprised the market, and a move like the one we are experiencing today becomes inevitable. Speculators will continue to see this as an opportunity to short sell Turkish Lira, but they do run a massive risk of burning their hands as the economic recovery in Turkey has become a lot stronger after the coronavirus crisis.

Fed Speeches

As for the week ahead, we will continue to hear from many other Fed members about their view of the economy. It is the speeches of other Fed members that are likely to shape up the dollar index‘s price action. We may likely continue to hear a more hawkish tone among certain Fed members, which may strengthen the recovery in the dollar index even further.

ECB Purchase

Market participants will also be keeping an eye on the ECB‘s weekly bond purchase data as well. We know that the Governing Council has said that it is committed to buying more through its Pandemic Emergency Purchase Programme.

The President of the European Central Bank has also said that she expects the change to become more visible in the coming weeks, and traders will be looking for evidence of this in today’s report. As a reference point, we have seen the purchases ranges from 12 to 14 billion euros during the previous three reports. Any number beyond this range is likely to assure us that the ECB is not only talking but also doing something.

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