Some currency pairs move in fits and starts. USD/TRY, the US dollar against the Turkish lira, has mostly moved in one direction for years. The lira has lost a large share of its value against the dollar, and understanding why tells you a lot about how inflation, interest rates and central bank credibility drive currencies.
What the pair shows
USD/TRY shows how many Turkish lira it takes to buy one US dollar. When the number rises, the dollar is getting stronger and the lira weaker. Because of Turkey’s long fight with high inflation, the long-term trend has been strongly upwards, with periods of sharp acceleration during currency crises.
Why the lira has weakened
The main reason is inflation. For much of the last decade, prices in Turkey have risen far faster than in the US. When a currency buys fewer goods at home each year, it also tends to buy fewer dollars abroad. Turkey has also often run a current account deficit, meaning it imports more than it exports, which creates steady demand for foreign currency.
Policy choices have played a big part. For a period, Turkey kept interest rates low even as inflation surged, an unconventional approach that pushed the lira sharply lower. More recently the central bank has raised rates dramatically to rebuild credibility and slow inflation, and that has helped stabilise the currency, although the lira has continued to drift weaker over time.
What moves the pair
Decisions by the Central Bank of the Republic of Turkey are the biggest scheduled events. Traders watch whether rates are cut or raised and whether the bank sounds committed to bringing inflation down. Monthly inflation data matters too. Political developments, relations with Western allies and changes in economic leadership can trigger large moves. Global factors such as US interest rates, the dollar’s overall strength and oil prices, which affect Turkey’s import bill, all feed in.
The carry trade angle
Turkish interest rates have been very high compared with those in the US or Europe. That attracts carry traders, who borrow in a low-yielding currency and invest in a high-yielding one to earn the difference. If the lira stays stable, the interest earned can be substantial. If it falls sharply, losses on the currency can wipe out months of interest in days. Our guide to carry trades explains the mechanics.
Risks for traders
USD/TRY is an emerging market pair, so liquidity is thinner than in major pairs and spreads can be wide, especially outside Turkish trading hours. Financing costs on leveraged positions can be large because of the interest rate gap, and they apply every night a position is held. Sudden policy announcements can cause gaps. Some brokers restrict leverage or trading on the pair during periods of stress.
How to approach it as a beginner
Start by understanding that the long-term trend reflects real economic forces, not just market sentiment. Follow the central bank’s decisions and the monthly inflation figures, and pay attention to the gap between them, known as the real interest rate. Keep position sizes small and allow for wider price swings than you would expect in pairs like EUR/USD or GBP/USD.
The beginner takeaway
The lira’s story is a lesson in why inflation and credibility matter so much for a currency. It is a pair to study carefully before trading. If you want to see how well you manage risk in higher-volatility markets, take the free Samuel & Co Trading Trader Assessment.
