By Greg Holden
Last week’s statement by Goldman Sachs that the Turkish lira (TRY) will come under selling pressure if the Turkish central bank doesn’t hikes rates has begun to see results. Advising its clients to hold long positions on the USD/TRY, Goldman Sachs’ strategy appears to be creeping across the forex world and the pair has indeed moved bullish since Friday.
The Central Bank of the Republic of Turkey is scheduled to meet this Thursday to discuss its monetary policy and bank regulations. Goldman doesn’t expect the bank to hike its rates beyond their current 6.25%, nor to adjust capital requirements for its banks.
As a result, many are joining the chorus and recommending long positions against the lira as part of their short- and mid-term portfolio. Should the central bank raise rates, the TRY’s strength may return. But for now a downturn is expected.
Turkey has always battled with what world it belongs to, the Middle East or Europe. With the growth prospects in Europe and the recent rate hike by the ECB, Turkey would need to follow suit to keep pace with its northerly neighbors. But the Middle East is in turmoil and the region’s currencies are under significant pressure. To keep its goods competitive with its southerly neighbors a weakened currency will be required.
This Thursday’s meeting will be a clash between those who view Turkey a part of Europe and those who view it as a part of the Middle East. With Turkish Prime Minister Recep Tayyip Erdogan leaning towards its Arab neighbors to the south, a Turkish policy in favor of holding rates steady and weakening its currency may be expected, thus depreciating the TRY over the next several weeks.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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