The Turkish Lira gained 19.4% on Monday, December 20, 2021, which is a 19-standard deviations event based on available sample in last 20 years. In short-term this is a significant move but in long-term it is irrelevant.
The chart below shows daily returns of the Turkish Lira (base currency) versus the US dollar (quote currency).
Since 2002, the standard deviation of the sample is about 1.01% and as a result, a 19.4% move is an event of about 19-standard deviations.
The long-term view, however, is not very impressive.
Stock traders may find the above chart similar to those of some penny stocks trading in OTC market.
What was once a significantly strong currency has been debased to nearly nothing by wrong policies, both domestic and geostrategic. Citizens have paid the price of a plunging purchasing power and loss of wealth.
In fact, the latest attempt to pump the currency is another error in a list of errors that endanger the Turkish economy, its citizens and even neighboring countries.
The government has for long pushed for lower interest rates amid rising inflation in an unprecedented policy error and also interference in monetary policy.
The pump in the Lira came as the government made another extraordinary move to guarantee higher interest rates for depositors in the form of fiscal stimulus.
In other words, speculators in the Lira took their profits yesterday and most ran because of the uncertainty this hijacking of monetary policy entails especially and the geopolitical dimensions that are emerging.
Today TRY is retreating about 5% as of writing of this article. Any gains may be short-lived unless the central bank regains its independence and executes sound monetary policy while the government refrains from cancelling it with fiscal policy.
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Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker. Data provider: Norgate Data