The Turkish lira (TRY) has steadied after US-Iran tensions eased. The Central Bank of Turkey (CBT) has kept confidence in a stable USD/TRY path.
TRY long positions were reduced during the period of tension. They were cut by about half.
CBT foreign exchange reserves fell from a peak of US$210bn to about US$161bn. This move was linked to a wider sell-off in global gold markets.
Recent data points to a return of TRY long positions. This matches improved global sentiment.
USD/TRY is expected to move gradually towards 46.6 by mid‑2026. This forecast assumes carry trades in TRY resume over time.
With the Turkish policy rate holding at a high of 50% against a U.S. rate of 3.5%, the environment is ripe for re-engaging in Lira carry trades. We have watched the USD/TRY pair move predictably from 43.0 at the start of the year to its current level of 45.1, showing the managed depreciation is on track. This stability, which follows the easing of geopolitical tensions we saw in the first quarter, provides a clear window of opportunity.
For those using forward contracts, the play is to go long on the Lira, betting that its actual depreciation will be slower than what the forward market is pricing in. The Central Bank of Turkey has been vocal about its commitment to stability, adding credibility to this managed path toward the mid-year target of 46.6. This gives us confidence that the spot rate will likely outperform the forward-implied rates in the coming weeks.
In the options market, the key is the recent drop in volatility. Implied volatility for USD/TRY has fallen from peaks above 30% during the Q1 risk-off period to a calmer 18% today, making it attractive to sell options and collect the premium. We see an opportunity in selling out-of-the-money USD/TRY call options with expirations in the next one to two months, a strategy that profits as long as the Lira avoids a sudden, sharp devaluation.
We must, however, remain mindful of the risks we saw during previous periods of instability, such as the sharp sell-off in 2021. The current strategy hinges on the central bank’s continued ability to manage market confidence and maintain sufficient FX reserves, which recently stood at $161 billion. Any shift in policy or unexpected external shock could quickly reverse the favorable conditions for these trades.
