• Turkish lira continues to tumble, down 9% on Monday.
• USD/TRY holds near recent highs, likely to trigger more inflation ahead and caos.

The Turkish lira is unable to find a pause and continues to slide. The USD/TRY reached at 17.95, a fresh record high. It is hovering around 17.85, up 9% for the day. In a week, the dollar rose almost 30%, creating a currency crisis in Turkey.

Turkey’s President Erdogan continued to support his policy during the weekend of cutting interest rates. The Turkish lira opened with declines, and it accelerated the sell-off during the last hours. USD/TRY opened the day below 16.50 and now is looking at 18.00.

The sharp devaluation of the currency will likely boost inflation and could lead even to a major macroeconomic crisis. The current administration is holding onto its speech that is adding fuel to the USD/TRY rally.

“Even a shock rate hike of 10 percentage points or so is unlikely to turn sentiment around near-term.  What Turkey needs now is an IMF to help stabilize sentiment but will not happen until things get even worse. As we know all too well, a currency crisis can quickly morph into a solvency crisis as external debt becomes impossible to service”, mentioned analysts at Brown Brothers Harriman.

Domestic factors drive the moves in USD/TRY. Emerging market currencies are posting mixed results as the Turkish crisis so far remains contained.