The Turkish lira is heading its strong November on another high note, driven by better-than-expected economic growth data. The lira has been rebounding since hitting a record low against its US peer, potentially setting itself up for a complete turnaround in 2021. Is the foreign exchange market placing its bets on Turkey?
According to the Turkish Statistical Institute, the gross domestic product (GDP) expanded at an all-time high of 15.6% in the third quarter. As the economy reopened and the plethora of coronavirus-induced restrictions were lifted, Turkey’s economy rebounded from the record 10.8% collapse in the July-to-September period.
Turkey saw the most gains in finance, information and communication, industrial, construction, agriculture, and real estate. Ankara did report a contraction in professional, administration, and support service activities.
Meanwhile, the trade deficit in Turkey widened to $2.373 billion in October, down from $1.765 billion from the same time a year ago. Exports surged 5.6% while imports climbed 8.4%. Turkey exported more agriculture and manufacturing, but it imported more capital equipment and consumer goods.
This comes after the central government reported that its economic optimism index slumped from 92.8 in October to 89.5 in November, which was the first decline in six months. Despite the index’s resurgence, it continues to be below last year’s 94.3 reading.
The lira had been one of the worst-performing currencies in 2020, thanks to a toxic mix of dwindling FX reserves and investors fleeing the lira. It posted multiple fresh lows, cratering to as low as 8.58 against the greenback. It has since rallied, climbing more than 7% in November. However, it is still down more than 31% year-to-date.
Investors are confident that the central bank will embrace more orthodoxy policy mechanisms when it comes to interest rates and tackling inflation. The entity had refrained from tightening policy due to fears of lackluster growth, but the market’s reaction to triple-digit rate hike suggested investors are optimistic about Turkey’s prospects.
The USD/TRY currency pair tumbled 0.17% to 7.8218, from an opening of 7.8354, at 19:34 GMT on Monday. The EUR/TRY fell 0.41% to 9.3349, from an opening of 9.3747.