Turkish Lira Against USD and JPY: History and Future
USD/TRY pair:
Exchange rates rarely remain the same, but the movement in this currency pair rate has been more volatile than most of the other pairs. During the last 60 months, the Turkish Lira (TRY) has depreciated nearly three times against the United States Dollar (USD). While TRY is known to be volatile, it rarely held a strong position against USD for a long period of time, during this timeframe.
Following is a brief summary of this currency pair’s price movement during the last five years.
JPY/ TRY pair:
Historically, the Turkish Lira has been a stronger currency than the Japanese Yen. However, the TRY has not performed well against the Japanese Yen (JPY) if we analyze the trend of the last five years (60 months). At present, one can buy 11.82 JPY against one TRY. Going back 60 months, however, one could buy 32.65 JPY for one TRY. Again, it can be seen that the TRY has depreciated nearly thrice against the JPY during the last five years.
Following is a brief summary of this currency pair’s price movement during the last five years.
It can be seen from the above data that while TRY has been able to remain firm against JPY during 2016–17 and 2018–19, the currency depreciated rapidly during short periods in-between, and did not bounce back.
The volatility of the Turkish Lira:
While the Turkish Lira has gone down against all major currencies during the last few years, the currency is also known for another reason, the high volatility. Various arguments could be given to explain this highly volatile nature of TRY. But before we move any further to discuss some of the specific aspects, it is important to highlight here that currency valuation is not a perfected art.
Currencies are valued against each other on the basis of various factors, and various players directly or indirectly may control this valuation.
At the basic level, regulatory authorities and governments of respective countries may decide either to have fixed or free-float exchange rates for their currency against major currencies.
In the case of the Turkish Lira, the currency by large is free-floating. It means that the currency rate at any point in time portrays a more realistic market rate. However, it could have certain disadvantages, as unfavorable market conditions can rapidly depreciate currency value, ultimately reducing the purchasing power of the currency holders.
Since the economic, political and social environment in Turkey has been volatile and uncertain (at least when compared to other main players like the US, GB, or Japan), the same volatility is seen to be translated into the Lira’s price movements. Covid-19 also seems to be making matters worse for Turkey’s currency.
One of the main reasons that TRY has been unable to uplift its value is that Turkey’s current account almost always runs into deficit, which puts too much pressure on the currency.
Similarly, an effort of Islamization to failed military coups and the country President’s aggressive takes on various geopolitical issues has resulted in uncertain conditions in the country. This has led to the rapid loss of investors’ trust during the time period of these events. The same has been reflected upon the TRY value as well.
Furthermore, Turkey has seen a huge inflation rate during the last few years, and the rate of this inflation has been volatile. As a result, Turkey also had to adjust its interest on various occasions to keep its economy growing.
Ultimately, all these factors also directly translated into volatile currency price movement for Turkey in recent times.
Overall, all the above and a few other factors have led to the volatile as well as the depreciated currency of Turkey.
As a trader of Lira, the following factors should be considered to make more informed decisions:
- Movements in Turkey’s current account balance.
- Proposed changes in Turkey’s interest rates.
- Diplomatic relationships between Turkey and the United States.
- Diplomatic relationships between Turkey and Saudi Arabia.
- News of foreign investments in the country, especially from Qatar. Remember that Qatar has invested heavily in Turkey during the last 2 years, which allowed excessive bleeding of Lira during 2018–19.
- Inflation rate statistics for the country.
Overall, it is important for Lira traders to keep a close eye on news and events related to Turkey. High volatility of TRY means that any news can have a larger impact on the price movement of Lira, as compared to similar news’ impact on other currencies, say the USD.
What this means for Crypto:
Digital Turkish Lira “TRYb” is issued by BiLira, listed on exchanges such as FTX, Bittrex, and Uniswap. Digital JPY “GYEN’’ is issued by GMO Trust, listed on exchanges such as Liquid, INX, and Uniswap. If we combine these tokens together, we can potentially create a digital FX pair GYEN/TRYb which will attract many FX traders. If you’d like to see this pair listed on crypto exchanges in the future, leave a comment and we will pursue to make it happen!
DisclaimerThis content is not financial advice and it is not a recommendation to buy or sell any financial instruments, FX trading, cryptocurrency or engage in any trading or other activities. You must not rely on this content for any financial decisions. Acquiring, trading, and otherwise transacting with financial instruments or cryptocurrency involves significant risks.We strongly advise our readers to conduct their own independent research before engaging in any such activities.GMO Trust does not guarantee or imply that any cryptocurrency or activity described in this content is available or legal in any specific reader’s location. It is the reader’s responsibility to know the applicable laws in their country.
