USD/TRY likely to trade around 7.00 by Q1 2020, says Commerzbank

The USD/TRY currency pair is expected to trade around 7.00 by the first quarter of 2020, according to the latest research report from Commerzbank.

The Turkish lira has lost nearly 3 percent against the dollar over the past month, ending up the worst performer among EM currencies. The weakness was originally kick-started by the announcement of military operations in Syria.

The operation was coordinated with the US administration, but lira weakness has since intensified because of renewed threats of harsh sanctions by the US administration. Trump has discretion in this regard and will choose if and when sanctions are actually triggered, the report added.

So far, several ministers have been put on the black list and sanctions on two government departments have been put in place.

What added to the lira’s woes yesterday was a weak industrial output number for August: output fell by 2.8 percent m/m swda (market expectation had been for -0.7 percent m/m), which contradicts the assessment made during the medium-term plan that the economy is recovering.

"In our view, Turkish President Erdogan is unlikely to modify his Syrian campaign midway. This means that the likelihood of eventual sanctions must be considered to be increasing. The combination of geo-political escalation and central bank dilemma is toxic for the lira," Commerzbank further commented in the report.