The Argentinian central bank followed precisely what was exactly advocated to Turkey. With financial support from the IMF it has rigorously hiked interest rates thus signal- ling its willingness to take on inflation. The pressure on the Argentinian peso nonetheless seems to remain in place. Yesterday’s events illustrate that Turkey will have to come up with something convincing as otherwise the Turkish lira (-44% against USD since the start of the year) might become the next Argentinian peso (-52%). There comes a point when signals alone no longer work to convince the market.
In Turkey, we have probably already reached a point at which monetary policy alone cannot save the lira any longer but where this has to be accompanied by political measures. We believe that the step just announced of increasing the tax on foreign exchange deposits and simultaneously reducing the tax on lira deposits will only help in the short term. Such micro-measures speak all the more in favour of avoiding a meaningful rise in interest rates in the foreseeable future.
As long as these external financing needs exist and the central bank does not offer attractive real interest rates the TRY crisis will not have been overcome on a sustainable basis so that the depreciation pressure on TRY will continue. Courtesy: Commerzbank
At spot reference: 6.5718 levels, contemplating above driving factors, on hedging grounds we advocate buying 3m USDTRY (1%) in the money call option, short 1m (1%) out of the money put option, deep in the money call with a very strong delta will move in tandem with the underlying. Courtesy: Commerzbank
Currency Strength Index: FxWirePro's hourly USD spot index has shown 60 (which is bullish), while articulating at 12:58 GMT.
For more details on the index, please refer below weblink:


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