Recent forecasts for the EUR to TRY exchange rate show a complex interplay of factors affecting both currencies. As of late November 2023, the euro (EUR) has been bolstered by a weakening US dollar (USD), which traditionally supports the strength of the euro. Analysts noted that the negative correlation between the EUR and USD played a vital role in driving the euro higher against the Turkish lira (TRY).
The European Central Bank (ECB) has recently made headlines due to its rate cuts aiming to stimulate the economy. On January 31, the ECB reduced its refinancing rate from 3.15% to 2.90%, which is indicative of a broader accommodative stance. This, along with potential milestones such as the adoption of the euro by Bulgaria in 2026, reinforces the perception of a strengthening eurozone and could support the EUR moving forward. However, persistent geopolitical tensions, notably the ongoing war in Ukraine, continue to pose risks to the euro's stability. These ongoing challenges, including energy market volatility and inflationary pressures, remain influential in shaping market sentiment.
In stark contrast, the Turkish lira (TRY) faces significant headwinds. The currency has struggled with political instability, particularly following recent events surrounding the arrest of Istanbul's mayor, Ekrem İmamoğlu. The political unrest has led to a renewed sell-off in the lira, as investors express concerns over President Erdoğan's commitment to economic reforms and rule of law. TRY's current level, trading at 45.51, is 5.1% above its three-month average of 43.3. Analysts have indicated that such volatility, characterized by a 13.5% range, positions the lira precariously against the euro.
Oil prices, currently at 73.23 USD, also play a role in impacting the EUR/TRY exchange rate. The rise in oil prices may increase the burden on Turkey's current account and inflation, further complicating the lira's recovery. With oil trading 9.3% above its three-month average, fluctuations in this commodity remain a critical watchpoint for market participants.
Looking ahead, the outlook for the EUR to TRY exchange rate appears influenced by a combination of ECB policy decisions, geopolitical developments, and Turkey's internal stability. Market forecasts suggest that any signs of recovery in the Turkish economy paired with greater political stability could offer limited support to the TRY. Meanwhile, continued economic improvement within the Eurozone, coupled with strategic ECB moves, may bolster the euro against the lira in the coming months.