Recently focusing on the foreign exchange market, I discovered an interesting phenomenon—Turkish Lira has been falling sharply in recent years, worth discussing.

First, a brief background. The Turkish Lira (TRY) is Turkey’s official currency, but it’s extremely volatile, making it one of the high-risk currencies globally. Looking back at history, in 2001, the Lira to USD exchange rate even dropped to an absurd 1 to 1.65 million. Later, Turkey implemented major reforms in 2005, adjusting the exchange rate at a ratio of 1 new lira to 100,000 old lira, which itself shows how unstable the Lira has been over the long term.

Why has the Turkish Lira been continuously depreciating? From my observation, the core issue boils down to two words—confidence. The Turkish central bank has long implemented unconventional policies, a typical example being cutting interest rates during periods of soaring inflation, which directly destroys market trust in the independence of the central bank. Coupled with inconsistent policies, this has led to accelerated capital outflows, with businesses and the public preferring to hold strong currencies like the US dollar and euro, creating a vicious cycle.

Another key factor is Turkey’s economic structure. The country is highly dependent on imports; energy and raw materials must be paid for in dollars. When the Lira depreciates, import costs rise, pushing up prices and further eroding market confidence—another vicious cycle. Additionally, in recent years, geopolitical risks have increased, making international investors more cautious about Turkish assets, which naturally makes the Lira more vulnerable to shocks. So, the reason for the Lira’s depreciation isn’t complicated; it’s essentially the result of low policy credibility, economic imbalance, and political risks stacking up.

Let’s look at recent exchange rate trends. By late May, USD/TRY had already risen to around 44.85, depreciating significantly since the start of the year. The pressure on the Lira in the first half of the year mainly came from external shocks and internal structural issues—although inflation has fallen from last year’s peak, it still remained at 30.87% in March, far above normal economic levels, continuously eroding the Lira’s purchasing power. While the central bank maintained a high policy rate of 37%, which sounds attractive, the real return after inflation is often negative or highly unstable.

In the short term, USD/TRY may continue to fluctuate between 44.8 and 46.5. The central bank’s meeting at the end of May to decide on interest rates is expected to keep rates high, which can help control the Lira’s depreciation to some extent. But if the dollar rebounds, energy prices fluctuate more, or inflation data exceeds expectations, the Lira will face phased depreciation pressures. As for EUR/TRY, it’s currently between 52.7 and 53.0, and TWD/TRY hovers narrowly around 1.42 to 1.43.

Regarding investing in Lira, my view is: it’s possible, but you need clear awareness. Over the past year, the Lira has depreciated about 19% against the dollar, and analysts generally forecast another 8% to 15% or more depreciation by 2026. Holding Lira assets long-term essentially means continuous loss of purchasing power; even with high interest rates, currency depreciation and rising prices could offset gains. Plus, Turkey faces rapid depletion of foreign exchange reserves, geopolitical risks, widening current account deficits, and other structural issues, making it highly volatile and unsuitable for conservative investors.

If you really want to trade Lira, I suggest three approaches. First, treat it as a short-term trading tool. The Lira’s volatility against the dollar often reaches 10% within a month, so traders experienced in forex short-term trading can seize event-driven opportunities for swing trading. Second, don’t expect appreciation for profit. The long-term trend of the Lira is downward with occasional rebounds; making money from appreciation is extremely difficult. Third, if you’re optimistic about Turkey’s reforms, consider small, phased positions—buy Lira in batches using USD at different times, and use technical rebounds for short-term trades. Never go all-in.

In terms of trading methods, bank currency exchange has low thresholds but wide spreads, futures have low liquidity, and CFDs offer a more efficient way—low deposit requirements, ability to go long or short, and high leverage. For traders aiming to capture Lira’s volatility, CFDs provide better capital efficiency.

Overall, although the Turkish Lira isn’t highly regarded by ordinary investors, its trend is clear, and the factors influencing its reversal are well-defined. Investors can choose their trading approach based on their risk tolerance and preferences, but they should also closely monitor Turkey’s overall economic and political developments to improve their judgment accuracy.