Analysis of the Underlying Reasons for the Continuous Weakening of the Turkish Lira and Exchange Rate Outlook

The Turkish Lira (TRY) is one of the most volatile currencies globally. In recent years, driven by high inflation, policy uncertainty, and geopolitical risks, this emerging market currency has faced long-term depreciation pressures, forming a unique “high interest rates, high volatility, high risk” characteristic. This article will delve into the economic roots of the Lira’s devaluation, the patterns of exchange rate fluctuations, and how investors should respond to this market phenomenon.

Overview of the Turkish Lira Fundamentals

Currency Basic Information

The Turkish Lira (Türk Lirası) is Turkey’s official currency, with the international code TRY and symbol ₺. The subunit is the kuruş, with 1 Lira = 100 kuruş. Currently circulating banknotes include denominations of 5, 10, 20, 50, 100, and 200 Lira, while coins include 1, 5, 10, 25, 50 kuruş, and 1 Lira. The Central Bank of the Republic of Turkey (CBRT) manages monetary policy.

Historical Background and Key Turning Points

The Lira’s depreciation history is long-standing. At the end of 2001, the Lira to USD exchange rate reached an extreme level of 1,650,000 to 1, reflecting the economic crisis at that time. To stabilize the monetary system, the Turkish government implemented significant reforms in 2005, exchanging 1 new Lira for 1,000,000 old Liras, and in 2009, the currency name was adjusted, officially adopting the name “Turkish Lira” after 2010. This history clearly explains why the Lira has faced prolonged exchange rate volatility.

As an emerging market currency, the Lira’s liquidity is relatively limited, and exchange rate fluctuations are driven by multiple factors including political stability, interest rate policies, price levels, and international relations.

Market Interpretation of the 2025 Lira Exchange Rate Trends

Exchange Rate Movements Since the Beginning of 2025

In early 2025, USD/TRY hovered around 35–36. As political turmoil intensified, inflation continued to rise, and market doubts about policy credibility grew, the Lira depreciated to about 42 per USD by mid-November, with an annual decline of over 20%. Notably, the arrest of Istanbul’s mayor in March triggered market panic, causing a sharp short-term drop in the Lira, demonstrating the market’s extreme sensitivity to political risks.

Limited Effectiveness of Central Bank Policies

Although the CBRT has attempted to stabilize the exchange rate by raising interest rates, persistent high inflation and structural issues remain unresolved. The Lira continues to fluctuate within a high-level depreciation channel. For investors, the Lira is a high-volatility, high-risk asset that requires a deep understanding of its economic background and risk factors to make rational assessments.

Core Drivers of the Continuous Depreciation of the Turkish Currency

Policy Credibility Crisis and Capital Flight

The fundamental reason for the long-term weakening of the Lira lies in the combination of “high inflation + low policy credibility.” In recent years, the Turkish government has adopted unconventional monetary policies, such as cutting interest rates amid soaring prices, leading to complete loss of confidence in the central bank’s independence. Businesses and the public have shifted to holding strong currencies like USD and EUR, creating a vicious cycle of capital outflows that further accelerates the Lira’s depreciation.

Import Dependence and Cost-Push Inflation

Turkey’s economic structure is heavily reliant on imports, especially energy and raw materials, which must be paid for in USD. Every depreciation of the Lira increases import costs, pushing up domestic prices. This rising inflation further erodes investor confidence in the Lira, forming a vicious cycle of “depreciation → inflation → more depreciation.”

Political Uncertainty and Foreign Investment Caution

In recent years, risks related to local elections, policy shifts, and tense international relations have made foreign investors more cautious about Turkish assets. This risk aversion directly weakens foreign exchange demand for the Lira, making it more susceptible to external shocks.

Overall, the Lira’s depreciation is not just short-term fluctuation but a long-term result of policy credibility issues, economic structural imbalances, and geopolitical risks.

Currency Exchange and Practical Usage Guide in Turkey

Choosing Currency Exchange Channels

In Taiwan, banks are relatively stable channels for currency exchange. Bank of Taiwan, Mega International, and Hua Nan Bank can be booked to exchange for Lira cash, offering transparent fees and manageable risks, suitable for obtaining travel funds; however, physical cash preparation takes 1–3 working days, so plan ahead. Airport exchanges are convenient but offer significantly worse rates and higher fees, suitable only for emergencies. Note that the Lira is not a popular currency for exchange in Taiwan; some branches may not have cash stock, so call ahead to confirm.

Local Usage Tips

In Turkey, it is recommended to use a combination of cash and card: small purchases (food, transportation) with cash, larger expenses (shopping, accommodation) with credit cards. Kuruş coins can be used for bus fares, tips, or small convenience store purchases. A cup of coffee costs about 15–25 Lira; a local meal ranges from 50–100 Lira. Travelers should budget based on current exchange rates.

Common Traps to Avoid

Street exchange booths claiming “zero fees” often offer rates 10–20% worse than official rates; avoid these. Fake bills are rare, but always check the integrity of cash when receiving notes. In Turkey, tipping around 10% is customary for restaurants and taxis; if paying in cash, round up to the nearest whole number.

Lira Investment Evaluation and Strategy Recommendations

Investment Positioning Analysis

Based on the 2025 market environment, the Lira remains a “high-risk currency.” Although the CBRT has attempted to curb inflation through interest rate hikes and financial reforms, structural issues such as low policy credibility, political uncertainty, and high import dependence continue to exert long-term depreciation pressure. The Lira is more suitable for traders seeking short-term arbitrage opportunities or willing to accept high volatility, rather than as a safe-haven asset or medium-to-long-term holding.

Short-term Trading Opportunities

USD/TRY exhibits intense volatility, often around 10% per month. For experienced forex traders capable of accurately capturing event-driven moves, the Lira can serve as a high-volatility trading instrument. However, holding the Lira long-term with expectations of appreciation is highly risky and unlikely to be profitable.

Gradual Entry and Risk Management

If optimistic about Turkey’s long-term reforms, a dollar-cost averaging approach can be employed: gradually converting USD into small amounts of Lira, combined with technical rebounds for short-term trades, avoiding lump-sum investments or long-term holdings solely in Lira.

Comparison and Selection of Lira Trading Methods

Investors can choose among the following three trading modes based on their risk tolerance and investment preferences:

Bank Exchange

Banks and currency exchange shops offer the lowest entry barriers, no leverage, and relatively controlled risks, suitable for investors who just want to hold Lira. Disadvantages include wider spreads, lower liquidity, and difficulty profiting from appreciation. Most Taiwanese banks do not offer TRY trading.

Forex Futures

CME offers USD/TRY futures (symbol 6M) with a notional value of 100,000 Lira. However, trading volume is sparse, liquidity is limited, and most brokers do not open these contracts to retail investors, making actual trading opportunities very limited.

CFD (Contracts for Difference)

CFDs are currently the most feasible trading option. They allow two-way trading of USD/TRY, enabling buying or selling based on market outlook. Advantages include online account opening, no need for face-to-face dealings, a minimum deposit of as low as $50, multiple currency pairs (USD/TRY, EUR/TRY, TRY/JPY, etc.), leverage options (minimum 0.01 lot), 24-hour trading, and risk management tools to control leverage risks. CFDs are more suitable for small to medium investors.

Outlook on Major Currency Pairs

USD/TRY: Short-term pressure, medium-term direction depends on policy coordination

Currently at high levels, influenced by Turkey’s inflation forecasts. Short-term (1–3 months) is likely to fluctuate within the current range. The December CBRT rate cut could create temporary depreciation pressure.

TRY/EUR: Follow the euro’s overall trend

The medium- to long-term bullish trend of the euro provides some support to the Lira, with short-term fluctuations linked to EUR/USD movements.

TRY/TWD: Driven by trade demand

The relative strength of TWD against USD amplifies the depreciation effect on the Lira. During the Taiwanese peak travel season before Lunar New Year, exchange demand may temporarily push the Lira higher, but in the medium to long term, it will still follow USD/TRY trends.

Key Monitoring Points

December’s CBRT rate decision (interest rate cut magnitude), March 2026 inflation data (policy effectiveness). If the Istanbul Stock Exchange Bank Index drops more than 5%, it signals potential rapid Lira depreciation risk.

Summary

Although the Turkish Lira is not widely followed by retail investors, its trend is clear, and the potential for trend reversal is evident. Investors should choose trading products and modes based on their risk appetite and preferences, while closely monitoring macroeconomic and political news to improve trading success. For those seeking high-volatility trading opportunities, the Lira’s fluctuations offer clear market opportunities, provided they fully understand the underlying economic risks.