Turkey Lira 2025 Trend Analysis: Euro and US Dollar Exchange Rate Forecast

Why Focus on Turkey Lira Euro Forecast?

Turkey is an important yet often overlooked participant in the global economic system. As a country spanning Eurasia, Turkey holds a strategic position geopolitically and economically. For investors engaged in forex trading, understanding Turkey’s economic trends and currency movements is crucial — it not only helps traders make more informed decisions but also enables them to seize potential opportunities amid market volatility.

The performance of the Turkish Lira is influenced by multiple factors. From macroeconomic policies to geopolitical risks, from central bank decisions to global commodity prices, these elements together form a complex ecosystem driving TL exchange rate fluctuations. For investors looking to trade Turkey Lira against the Euro, a deep understanding of these drivers is a prerequisite for developing effective strategies.

A New Chapter in Turkey’s Economic Reforms

In May 2023, President Erdogan’s re-election triggered a significant reshuffle of the economic team. The new Finance Minister Mehmet Simsek was a senior strategist at Merrill Lynch, while the new Central Bank Governor Fatih Karahan took over from Hafize Gaye Erkan in February 2024. These personnel changes send a clear signal: the Turkish government will adopt more market-oriented and rational economic policies.

Markets responded positively to these appointments. From May 2023 to August 2025, Turkey’s stock market surged by 153%, reflecting investor confidence in the new policy direction. More importantly, inflation dropped from over 75% in early 2023 to about 35% in August 2025 — one of the most significant price stabilization progress in recent Turkish history.

However, historical lessons keep markets cautious. During Naci Agbal’s tenure as Central Bank Governor (November 2020 to March 2021), he implemented aggressive rate hikes to combat inflation but was forced to step down due to policy disagreements with the president. This history reminds market participants that the stability of Turkey’s economic policies remains to be seen.

Three Key Factors Determining the Lira’s Trajectory

Evolution and Outlook of Monetary Policy

Under the new policy framework, Turkey’s central bank has taken an unusually aggressive stance. From February 2023 to March 2024, the benchmark interest rate soared from 8.5% to 50%, marking a highly intense tightening cycle. The effects are evident: inflation declined from extremely high levels to the 28-30% range between January 2024 and August 2025.

Based on easing inflation pressures, the central bank began gradually cutting rates from mid-2024. As of August 2025, the rate was lowered to 43%. The central bank’s outlook is clearly reflected in its medium-term inflation targets: 24% for 2025, 16% for 2026, and 9% for 2027. Such targets indicate that policymakers believe Turkey is on a sustainable downward trajectory for inflation.

Regulatory Environment Improvements

The new economic team abolished several restrictive measures put in place by the previous government. These measures were originally aimed at slowing the Lira’s depreciation but also hindered foreign capital inflows. For example, restrictions requiring banks to buy government bonds for high-interest loans or incomplete corporate credit benchmarks have been lifted.

Easing these restrictions helps improve the investment environment and attract more international capital. Preliminary data suggest these reforms have had positive effects, though longer-term assessment is needed to confirm their durability.

Ongoing Geopolitical Risks

Although Turkey has not directly participated in the Israel-Palestine conflict, as a Muslim-majority country, its political stance is clear. Erdogan’s government has consistently supported Palestine and criticized Israeli policies. However, as a NATO member, Turkey faces a delicate balancing act between Western alliances and the Islamic world.

Any escalation in Middle East tensions — whether trade restrictions, energy price fluctuations, or security threats — could pressure the Turkish Lira. Additionally, Turkey’s location in a seismic zone, with the disaster in early 2023 killing over 50,000 people, highlights natural disaster risks that can also impact market sentiment.

The Complex Outlook for EUR/TRY Exchange Rate

The EUR/TRY exchange rate reached 1:47.73 in early 2025, indicating a relatively strong euro. However, the outlook for this currency pair is fraught with conflicting signals.

Factors Supporting Euro Appreciation:

• Structural concerns about Turkey’s economy persist
• The European Central Bank may delay rate cuts, supporting the euro
• US tariffs below expectations ease EU export pressures, giving Europe a breather
• Due to exchange rate and policy risks, investors demand higher risk premiums on Turkish assets

Factors Supporting Lira Appreciation:

• Turkey’s inflation decline exceeded many analysts’ expectations
• Turkey’s 2025 economic growth is projected at 3%, well above the Eurozone’s 0.9%
• Nominal interest rates: Turkey’s 43% policy rate far exceeds the ECB’s 2%
• High debt levels in some EU countries (Greece, Spain, Italy) pose potential risks that could weaken the euro

These opposing factors create a tug-of-war, making EUR/TRY forecasts a balancing act amid uncertainty. If Turkey can control inflation while maintaining growth, the Lira could appreciate against the trend. Conversely, if political risks resurface or external shocks intensify, euro appreciation may continue.

The Dynamic Relationship Between USD and the Turkish Lira

The US Dollar Index fell 6.7% from November 2024 (post-Trump’s election) to August 2025, seemingly indicating a weakening dollar overall. Yet, during the same period, USD/TRY rose by about 17%, illustrating that domestic factors — especially inflation — heavily influence the exchange rate.

The US economy remains optimistic. Goldman Sachs forecasts a 2.5% GDP growth for 2025. Turkey’s growth is expected between 2.7% and 3.5%, both showing momentum, but US policy environment may be more attractive.

The Federal Reserve’s stance is crucial for dollar trends. In 2024, the Fed cut rates multiple times but paused in August, maintaining rates at 4.25-4.50%. Given stable inflation data, markets expect possibly two more rate cuts in 2025. However, with July 2025 US inflation at 2.7%, still relatively high, the Fed has reasons to remain cautious.

If the Fed maintains higher rates due to sticky inflation, the dollar could continue to appreciate. In this scenario, USD/TRY might keep rising, driven by dollar strength and Lira weakness.

Long-term Challenges and Opportunities for the Turkish Lira

The core issue for Turkey’s economic outlook is: stability. Over the past decade, Turkey’s economic policies have shifted rapidly multiple times, causing hesitation among long-term investors.

To restore confidence, Turkey must:

• Maintain high real interest rates to sustain inflation decline
• Enforce strict fiscal discipline
• Create jobs and implement labor market reforms to reduce unemployment
• Most critically, strengthen the rule of law — ensure judicial independence, central bank autonomy, fair law enforcement, and anti-corruption measures

Externally, Turkey must navigate geopolitical risks. Escalation of Middle East conflicts remains a threat, and developments in Ukraine will influence energy prices and trade flows affecting Turkey.

Despite these challenges, the significant depreciation of the Lira in 2024-2025 (USD appreciation of about 16-17%, EUR appreciation around 31%) offers potential opportunities for forward-looking traders. If Turkey can demonstrate credible economic reforms, the Lira’s rebound potential could be substantial.

Relative to the euro, the Turkish Lira’s outlook may be more favorable, especially if European growth remains sluggish. Resolution of the Ukraine conflict could lower energy prices and improve economic prospects, but prolonged conflict would further strain Europe’s economy.

2025 Trading Outlook

2025 will be a year full of uncertainties for the Turkish Lira. The optimistic US economic outlook, potential protectionist policies under Trump, and Europe’s stagnation will all influence exchange rate patterns.

For traders monitoring Turkey Lira Euro forecasts and dollar trends, key indicators include: central bank policy signals, inflation data, political stability signs, and global risk sentiment shifts.

High-risk assets often come with high return potential. The volatility of the Turkish Lira indeed offers attractive gains for risk-tolerant investors but also demands strict risk management — including stop-loss orders, regular position reviews, and diversification across multiple trading pairs.