Lira Hits Historic Lows

The ongoing economic slowdown and rising security risks continue to cause uncertainty for the Turkish Lira, paving the way for a -25.00% decline versus the US dollar over the last 52-weeks alone. The situation in Turkey with Islamic State and the Kurdish Separatists have raised concerns about political stability.

Amid the uncertainty, political officials are debating whether to expand powers of President Erdogan, which could further muddy the outlook for the economy going forward as the Central Bank runs into resistance when it comes to raising rates to fight inflation and the decline in the local currency.

After the Central Bank lowered the lowering reserve ratio requirements for financial institutions the Lira losses moderated slightly. However, Tuesday’s selloff has extended into Wednesday’s session with the USDTRY pair reaching back towards the previous session’s highs.

The unadjusted unemployment rate in Switzerland remains on the climb, rising to 3.50% during December after missing forecasts of joblessness remaining on hold at 3.30%.  Besides marking the highest rate of unemployment since April, the figure suggests that the extremely accommodative Central Banking policies are starting to experience a diminished impact.

While inflation has managed to climb back to flat after trending in deflationary territory for 25-months, other fundamental indicators remain under pressure, with GDP growth stagnating during the third quarter at 0.00%.

As inflation rises, it will begin to pave the way for the Swiss National Bank to begin tightening policy from a record low interest rate of -0.75%, however, until then, the Franc is likely to remain under pressure, with the USDCHF pair recovering after a modest selloff to start 2017.