They did not back down! The US bank's dollar exchange rate forecast had become a hot topic

At the beginning of 2024, the US banking giant Wells Fargo, which had expressed a long-term cautiously optimistic outlook regarding the Turkish Lira, stated in its latest report that it is reiterating its long-term constructive view on the Turkish Lira with "increased conviction" following the local elections.

As reported by Ekonomim, Wells Fargo, which argues that the US Dollar has reached its peak against the Turkish Lira for this year, repeated its view that the exchange rate will fall below 30 TL in 2025.

The report published by Wells Fargo included the following statements:

"At the beginning of this year, we officially expressed a long-term cautiously optimistic outlook on the Turkish Lira; this was a notable change in view after years of pessimism. With the local elections behind us and the continued commitment to policy and economic orthodoxy, we reiterate our long-term constructive view on the Turkish Lira with increased conviction.

Since the start of the CBRT tightening cycle, market participants have responded positively to Turkish assets. Credit default swap spreads on Turkish sovereign debt have narrowed significantly and have converged toward the emerging markets sovereign dollar-debt CDS spread index. In fact, since the start of the CBRT tightening cycle, Turkey's spreads have narrowed by over 205 basis points, while the EMBI index has narrowed by only 91 basis points.

Furthermore, there was political uncertainty ahead of the local elections, and this uncertainty led to a premium for the US dollar when converting TL to the US currency compared to the official USD/TRY rate. However, with the uncertainty regarding the local elections in the past, this dollar premium has diminished, and the official and unofficial exchange rates have converged, leaving only a small but normal premium for the US dollar.

In our view, the convergence of exchange rates and the reduction of the dollar premium reflect growing optimism regarding the future value of the lira. For the lira, the combination of improving local political dynamics, the independence of a credible monetary authority, and non-interference in Turkey's democratic system should result in a stronger currency over time. In this sense, as we have stated before, we reiterate our constructive view for the Turkish Lira, this time with higher conviction, and we believe that the worst of Turkey's currency problems is likely behind us.

However, we think that occasional bouts of volatility may occur in the lira. Nevertheless, we believe that the volatility in the lira—assuming no major political disruption or backtracking from recent policy implementations—will be temporary and that the currency will tend to strengthen by the end of the year.

The forecast horizon is, for now, until the end of the third quarter of 2025. In this sense, we believe that the USD/TRY rate has peaked this year and will fall below 30.00 TL by mid-2025."

News Source: 12punto