USD/TRY continues to move up in a linear fashion. In our Daily Currency Briefing of 27 August, we started our TRY commentary with the sentence 'USD/TRY breached the 41.0 level this week amidst media and policymaker commentary about positive developments on the economic front'. That was then. Now we are approaching 42.00. The bit about positive policymaker spin is as true now, as then, Commerzbank's FX analyst Tatha Ghose notes.

Lira continues to bear the toll of uncertainty

"Turkey’s August current account data were, indeed positive: the headline $5.5bn surplus was just seasonal (tourism peak etc), but ignoring that number, the seasonally-adjusted trend is moving away from deficit territory. The core balance (excluding gold and energy), maintains its own upward trajectory, reaching $10.0bn."

"Nevertheless, the jump in capital inflow observed in July faded away in August. This is what we had forewarned about regarding frequent 'resets' to investor perceptions because of political uncertainty. In sharp contrast to the strong net portfolio inflow of $5bn in July, August recorded net outflow of $662mn. September is likely to have witnessed similar trends on the back of chaotic court rulings in Istanbul. Banking sector flow faded from $11.8bn to $2.9bn."

"In short, the fundamental current-account situation may have improved thanks to tight monetary policy, but the capital account reacts promptly and adversely to political noise. Frequent volatility means that interim positive spells fail to stabilise the currency. The Lira continues to bear the toll of uncertainty, depreciating at a fast clip."