The Turkish Lira had a short-lived increase but quickly lost its gains. Right now, USD/TRY is trading at a higher rate than before the central bank made its recent decision. Analysts are cautious about the Lira, pointing to ongoing inflation issues and weak monetary policies as major problems. Experts believe the Lira will continue to lose value without any intervention. High interest rates haven’t addressed the inflation issue. Additionally, strict exchange rate controls by policymakers and state banks have created a significant gap in the exchange rate.

Use of Artificial Intelligence in Article Production

This article was created with the help of an Artificial Intelligence tool and checked for accuracy by an editor. The FXStreet Insights Team gathers insights from respected experts and offers perspectives from both in-house and outside analysts. The Lira’s short rally has reversed, confirming our belief that the underlying economic issues remain unresolved. High interest rates have not yet addressed inflation, meaning the Lira will likely continue to face pressure. Derivative traders should prepare for further weakness of the Lira against the dollar in the upcoming weeks. Recent data shows annual inflation is still over 45%, while the central bank’s policy rate is at 40%. This negative real yield makes the Lira less appealing to investors. In this environment, buying USD/TRY call options may be a good strategy to take advantage of a potential drop in the Lira’s value.

Strategies Amid Negative Real Yield

We also observe that state-run banks continue to manage the exchange rate, creating an artificial value and a significant gap. History shows that these interventions often lead to sudden, sharp devaluations when the pressure becomes too much. This suggests that securing a higher USD/TRY rate through forward contracts could be a wise move. Due to the risk of sudden changes, implied volatility for Lira options may be high, which makes them costly. Traders might consider using strategies like call spreads on the USD/TRY pair. This approach lowers the cost of entry while still allowing for potential profits from a steady increase in the exchange rate. Create your live VT Markets account and start trading now.

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