One of the biggest reasons why TRY is so weak is that developed economies such as the US offer low borrowing rates. It draws investors’ capital away from developing markets such as Turkey.
Turkey experienced a currency and debt crisis in 2018. It was characterised by a TRY fall in value, high inflation, rising borrowing rates, and rising defaults on loans. The recession was triggered by an unsustainable current-account deficit. Also with foreign-currency debt in the Turkish economy.
US and European interest rates allowed Turkish businesses to invest in foreign currencies for years. This pulls capital out of Turkey and weakens the currency. And it makes repaying foreign-currency loans more costly for Turkish companies.
When a nation runs a significant deficit in trade and spends with the rest of the world. It buys more than it sells and depends on foreign borrowing and lending. That deficit, especially when foreign investment starts flowing in, will weigh on a currency.
The fall of the lira was exacerbated by the statements made by President Recep Tayyip Erdogan on economic policy. He urged the Central Bank not to increase interest rates. Rate rises, while they can delay expansion, are the Central Bank’s key weapon to help the currency and combat inflation.
The Central Bank seems to have listened to Erdogan and has not increased rates although others have encouraged him to. This stifled investor trust in the central bank, resulting in a further currency sell-off.
With the decision of Turkey to detain a US protestant preacher. It has contributed to the United States placing restrictions on two members of the Turkish government. The Conservative Evangelical Protestants constitute a significant portion of the USA’s president constituency.
Donald Trump raised the stakes by saying that his administration would double its steel and aluminum tariffs on Turkey. This led the lira to decline more. Recall that the US was Turkey’s largest export market for steel years ago.