USD/TRY to hit new highs by the end of this year and throughout 2022 and 2023 – Wells Fargo

In the first few weeks of November, the Turkish lira has lost close to 25% of its value, while year-to-date the currency has weakened over 40% against the US dollar. Economists at Wells Fargo expect local actions to be taken in an attempt to stabilize the TRY, although further lira depreciation and new record lows against the dollar are very likely.

Turkish authorities to take action in response to the sell-off

“We fully expect interest rates to be cut again at the next monetary policy meeting on December 16 and for the lira to continue to hit new lows against the dollar by the end of this year and throughout 2022 and 2023.”

“Our most recent forecasts for the USD/TRY exchange rate have the lira dropping to 13.00 by Q2-2022 and eventually reaching 14.50 by the beginning of Q1-2023. Our forecasts imply about another 15% depreciation of the lira by the beginning of 2023; however, risks around this forecast are without question tilted toward more lira weakness than we currently anticipate.”

“In the very near future, we expect Turkish authorities to instruct local banks to re-start selling US dollars and purchasing Turkish lira; however, Turkish banks likely do not have enough US dollars to disrupt the downward pressure on the lira.”

“We expect Turkish authorities to reach out to allies such as Qatar, China, Azerbaijan, and other Asian nations as well as Russia in an attempt to enhance, extend or even initiate US dollar FX swap lines. However, broader market forces are currently too powerful, and we doubt these FX swap lines, if secured, will do much to alter the depreciation path ahead for the lira.”