USD/TRY rose on Friday after a small fall the prior day. It hit a record 45.7778 in Asian hours. The Turkish Lira weakened on political uncertainty after a top court ruling. Turkey’s top economic policymakers meet on Friday morning. They will discuss measures to stem market turbulence.
An Ankara appeals court annulled the 2023 leadership contest of the Republican People’s Party (CHP). The ruling removes current leader Özgür Özel. The US Dollar found support as markets priced a more hawkish Federal Reserve (Fed) stance. Higher energy prices may lift core US consumer prices and inflation expectations. This could keep interest rates higher. Fed officials are holding the federal funds rate steady. They are less focused on rate cuts. They remain open to raising rates if inflation stays firm. On Friday, President Donald Trump will swear in Kevin Warsh as Fed chair. He replaces Jerome Powell, whose term expired on Friday.
Political Uncertainty And Inflation Drive Record Lira Weakness
Looking back at the situation in 2025, we saw a perfect storm for Lira weakness, with the USD/TRY pair hitting a record high near 45.78. This was driven by a combination of severe political uncertainty in Turkey and a strengthening US Dollar. Those fundamental drivers appear to remain in place, suggesting continued upward pressure on the pair.
The ongoing political risk in Turkey, highlighted by the court challenges against the main opposition party we saw last year, is a long-term issue. This environment suggests that any short-term strength in the Lira is likely a selling opportunity. Traders should consider using call options on USD/TRY to gain exposure to further upside while strictly defining their maximum risk.
This vulnerability is rooted in a history of high inflation, which we saw hit nearly 70% in early 2024, a level that decimates domestic confidence and foreign investment. That persistent economic pressure means the Lira has little fundamental support to withstand political shocks. The record highs from last year were not an anomaly but a continuation of a multi-year trend of depreciation.
US Policy Shifts And Trading Strategies For USD/TRY
On the other side of the trade, the US Dollar’s strength is a major factor, especially after the Federal Reserve leadership change in 2025. The appointment of Kevin Warsh, known for his more hawkish views, signaled a commitment to fighting inflation that likely extends through today. This contrasts with the more data-dependent stance of his predecessor.
The US economy’s resilience, with core inflation proving stubborn even after the 2022-2023 rate hike cycle, supports this hawkish outlook. The Fed’s willingness to consider more rate hikes, a topic that was actively discussed last year, keeps the floor under the Dollar. Therefore, positioning for a strong dollar against a basket of emerging market currencies, not just the Lira, could be a prudent strategy.
Given these dual pressures, implied volatility in the USD/TRY pair is expected to remain high in the coming weeks. This makes options strategies like long straddles or strangles attractive for traders who anticipate large price movements but are uncertain of the immediate direction. The combination of Turkish domestic policy and US monetary policy creates an environment ripe for sharp, sudden moves.
