FxWirePro: Hedge Turkish lira between CBRT and Erdogan’s triumph

The Turkish lira (TRY) surged after Erdogan claimed triumph in the weekend’s Turkish presidential election. After much ado about how AKP’s and Erdogan’s ratings had begun to falter ahead of the election, the incumbents performed much better than polls had indicated and the opposition alliance bit the dust. Erdogan won the presidency in the first round itself (with 52.5% of the vote) and the AKP-MHP alliance achieved a wide 57% majority of the parliament.

While this outcome is positive for producing a relatively stable government, the risks to the central bank and monetary policy, and hence, the lira outlook have multiplied. Our FX Hotspot from earlier today recaps the main points.

While we hold off moving UW with the CBRT surprising once again. The aggressive 500bps of tightening cumulatively delivered since April 25th is supportive for the currency in the first instance, however, we see a portion of it as merely “catching up”, with inflation accelerating.

Contemplating above driving factors, on hedging grounds we initiate RV trade - 3m USDTRY put up-and-in Short USDTRY.

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