The U.S. Federal Reserve’s monetary policy decisions have a direct influence on the Turkish Lira. As the world’s leading economy, U.S. interest rates and policies significantly affect global markets, especially emerging market currencies like the Turkish Lira. When the U.S. raises interest rates, the Lira tends to depreciate, as higher returns in U.S. assets attract investors away from riskier emerging markets.
During periods of U.S. monetary tightening, where interest rates are increased, capital often flows out of countries like Turkey as investors seek buy tl currency, higher-yielding assets in the U.S. This outflow of capital leads to a decrease in demand for the Lira, causing its value to drop against stronger currencies such as the Dollar.
On the other hand, when the U.S. adopts an expansionary monetary policy with lower interest rates, emerging markets like Turkey often see increased capital inflows. Investors are more willing to take risks in search of higher returns, which can strengthen the Turkish Lira by boosting demand for local assets and investments.
However, the impact of U.S. policy on the Lira is not purely financial. Changes in U.S. foreign policy or trade relations can also affect investor sentiment toward Turkey, either positively or negatively influencing the value of the Lira. Diplomatic tensions between the two countries can exacerbate the Lira’s volatility.
As the U.S. remains a dominant force in the global economy, Turkey will continue to be affected by its monetary decisions. For the Turkish Lira to gain more stability, it’s essential for Turkey to strengthen its domestic economy and reduce reliance on external factors like U.S. monetary policy.