In a noteworthy financial update following Turkey’s local elections, the Turkish Lira (TRY) has impressively managed to retain about half of the gains it experienced right after the opposition’s success over the weekend. This financial movement has brought the curve down by approximately 250 basis points (bp) from its pre-election levels, with noticeable interest in the receiving end of the 1-year and 2-year parts of the curve.

The election results have been received positively by market observers and financial experts. According to traders at UBS, this development is particularly favorable for Turkey, effectively eliminating any potential for President Recep Tayyip Erdogan to advocate for constitutional reforms. The sentiment among UBS traders suggests a strategic pivot for Erdogan, who is expected to fully support Finance Minister Mehmet Simsek in the battle against inflation.

This strategic alignment within the Turkish government is viewed as a crucial step towards economic stability and growth. By backing Finance Minister Simsek, Erdogan is signaling a firm commitment to tackling one of the country’s most pressing economic challenges: high inflation rates. This move is anticipated to foster a more stable economic environment, laying the groundwork for sustainable growth.

Furthermore, the positive trajectory in Turkey’s foreign relationships adds another layer of optimism. The upcoming meeting between US President Joe Biden and President Erdogan at the White House is a significant diplomatic event that underscores the importance of Turkey’s position on the international stage. Such developments are likely to contribute positively to Turkey’s economic outlook, enhancing investor confidence.

Given these developments, UBS traders are advocating a strategic financial position. They recommend going short on the USDTRY spot, suggesting that investors could benefit from betting against the US dollar in its pairing with the Turkish Lira. Additionally, they advise receiving positions in 1-year or 2-year contracts on spikes, a move that reflects a bullish outlook on the Lira’s performance moving forward.

The aftermath of Turkey’s local elections presents an intriguing scenario for the country’s economy and its currency. The Turkish Lira’s resilience in holding onto its post-election gains is a testament to the positive market sentiment and the strategic economic measures being adopted. As Turkey navigates through these changes, the support for Finance Minister Simsek in the fight against inflation, coupled with strengthening foreign relations, particularly with the US, points towards a promising path for economic recovery and stability. Investors and market watchers will be keenly observing these developments, as Turkey takes steps to solidify its economic foundation in the wake of a significant electoral milestone.