The Turkish lira is beginning to turn around a sinking ship as the currency recorded an impressive gain against its US peer on Thursday. The lira benefited from economic confidence surging to a 14-month high, but monetary policy continues to dominate headlines and investment trends. Can the USD/TRY currency pair target 8.10 next?

According to the Turkish Statistical Institute, the economic optimism index surged to 98.9 in March, up from 95.8 in February. This was the best reading since January 2020. Confidence grew among consumers, manufacturers, and service providers, but fell for constructors.

The monthly index is crucial because, as TurkStat writes, “The economic confidence index is a composite index that encapsulates consumers’ and producers’ evaluations, expectations, and tendencies about the general economic situation.”

Last month, the Istanbul Chamber of Industry Turkey manufacturing purchasing managers’ index (PMI) climbed to 52.6, up from 51.7 in the previous month – anything above 50 indicates expansion. Ankara experienced strong output, new orders, and employment gains in the manufacturing sector. But prices still weighed on the industry.

On Monday, consumer and producer prices data will be released for March. Earlier estimates suggest a notable increase in the consumer price index (CPI) and the producer price index (PPI).

Meanwhile, the central bank is reporting that foreign exchange reserves declined to $50.89 billion in the week ending March 26. This is down from $53.89 billion in the previous week. This also represented the forex reserves since the week ending January 22.

Last week, foreign investors sold $1.9 billion of Turkish assets, the largest outflow in 15 years. Global financial markets are concerned that the institution would return to an era of loose monetary policy, particularly lower interest rates, to spur economic growth.

But new central bank Governor Sahap Kavcioglu warned investors that they should not believe that the Monetary Policy Committee (MPC) meeting later this month will deliver a cut to interest rates. Plus, he assured traders that he intends to follow the economic data and maintain the central bank’s 5% target rate.

The USD/TRY currency pair fell 1.54% to 8.1220, from an opening of 8.2491, at 17:01 GMT on Thursday. The EUR/TRY dropped 1.18% to 9.5624, from an opening of 9.6474.