USD/TRY — the Turkish lira, the TCMB and the carry trap

In January 2020 a dollar bought 7.40 liras. Six years later USD/TRY trades around 35 — the lira has shed roughly four-fifths of its value against the dollar. The chart does not look like a market where two sides fight over direction; it looks like a staircase heading one way. That makes USD/TRY the best study a retail trader has of a structurally depreciating currency — and of why a nominally tempting carry can be one of the most dangerous traps on the market.

Why the lira depreciates structurally

USD/TRY is quoted in the “how many liras per dollar” convention, so a rising rate means a weaker lira. According to the Bank for International Settlements Triennial Survey of 2022, the pair accounts for under one percent of global daily turnover; it is thin, and retail spreads routinely sit in a 200–500 pip range. But what matters on this pair is not liquidity, it is direction.

The lira has depreciated for years for three reasons that feed on one another. The first is a long stretch of deeply negative real interest rates: the TCMB held the nominal rate far below inflation, so keeping savings in lira meant a guaranteed loss of purchasing power — in 2022, with inflation above 80 percent against a policy rate in the teens, the real rate fell to roughly minus 76 percent. The second is the structure of the economy: Türkiye imports virtually all its gas, most of its oil and much of its food, so every weakening of the lira lifts prices at once. The third is a chronic current-account deficit of 3–6 percent of GDP, which leaves the country dependent on foreign capital. Together they form a loop: a weaker lira means higher inflation, and higher inflation against suppressed rates means a weaker lira still.

The TCMB — a central bank in the shadow of politics

The Türkiye Cumhuriyet Merkez Bankası, or TCMB, is the formally independent central bank of Türkiye, and its statutory objective is price stability. For a long time the practice looked different. Between 2019 and 2023, President Recep Tayyip Erdoğan changed the bank’s leadership several times, always over the same clash: governors who wanted to raise rates against rising inflation lost their job, and the policy rate fell while inflation rose — the opposite of what an orthodox central bank does.

The turning point came in June 2023. With the external balance close to breaking point, Erdoğan accepted a return to orthodox policy, and the new leadership took the rate from 8.5 percent to an eventual 50 percent; in May 2026 it stands at 47.5 percent, with inflation down from around 85 percent at its peak to roughly 38 percent. That is real disinflation, but the lesson is a different one: if monetary doctrine could reverse 180 degrees within two weeks, it can reverse again, and a pair whose rate hangs on political will carries a risk that classical fundamental analysis cannot price. For more on how divergence between central banks drives trends, see watching central banks together.

The carry that almost never compensates for depreciation

This is the heart of the problem. A trader looks at the interest-rate gap — with the TCMB rate around 47 percent and the Fed at 4.5 percent it exceeds 4,000 basis points — and sees an opportunity: buy the lira (a short position in USD/TRY) and collect a positive swap — carry-trade logic in pure form. The trouble is that carry on the lira almost never compensates for the move in spot, and interest-rate parity says why: a higher-rate currency should, on average, weaken by the size of the rate gap. We break down the mechanics of carry itself — a cheap yen funding a higher-yielding currency — in USD/JPY and the carry trade; the lira is its dark mirror.

“High-yielding emerging-market currencies tempt investors with positive carry, but these are exactly the currencies that can crash the hardest — and when they crash, the carry income earned over many months can be wiped out in a matter of days.” — Kathy Lien, Day Trading and Swing Trading the Currency Market, Wiley, 2016.

And this example is deliberately mild: it assumes a moderate 30 percent depreciation and a generous swap, when brokers actually pay only a fraction of the theoretical gap and the lira has lost far more in bad years. A huge nominal swap on an exotic is a warning, not an opportunity — the market does not pay for nothing.

Brutal trends and gap risk

USD/TRY is one of the most volatile pairs available to a retail trader, and its volatility is skewed and one-directional. A typical session brings a 600–1,200 pip move, but a handful of sessions a year deliver several thousand pips, almost always toward a weaker lira. In March 2021, on the night the governor Naci Ağbal was unexpectedly dismissed, the rate jumped from 7.30 to 8.40 in a single session — 15 percent. Gaps like that are the rule in the lira, not the exception.

The second layer is the cost of carrying the position. During episodes of pressure the TCMB squeezes offshore lira liquidity, so the cost of holding a short-lira position can spike overnight, and brokers respond by widening spreads to 800–1,500 pips or pulling the pair entirely — the trader counting on quiet swap income suddenly pays more to hold than it earns. That mix of a one-way trend, gaps and an unstable rollover cost makes the lira an instrument where the usual assumptions about liquidity do not hold. Among emerging-market currencies at European brokers it is the extreme, though not the only, case — see also USD/ZAR and the South African rand.

Inflation as the compass and disinflation as the test

Since the lira’s depreciation is above all a function of real rates, the single most important indicator here is inflation. The Türkiye İstatistik Kurumu (TUIK) publishes CPI data at the start of each month, and the gap between those readings and the TCMB rate tells you whether the real rate is positive or negative — a more reliable tool than any chart, and the centre of fundamental analysis for any emerging-market currency. That is why the disinflation since 2023 is a test: if inflation keeps falling while the high rate is held, the lira has a chance of relative stability; if political pressure forces premature cuts — a scenario history has shown to be real — the real rate turns negative again and the depreciation restarts. We unpack how inflation readings move an exchange rate in our piece on CPI inflation in a trading strategy.

What to do with USD/TRY as a retail trader

The most honest answer is this: treat the pair primarily as a case study, not a day-to-day trading vehicle — it shows, in real time, how negative real rates, a weak external balance and political risk combine into a trend a positive swap cannot reverse. If you do insist on a position, three rules apply. First, use a micro lot and be ready to take a loss far earlier than usual — gaps here can leap over any sensible stop loss. Second, never let a positive swap be the reason to open a position; a high swap is the price of risk, not a gift. Third, do not hold over a weekend when political announcements are expected.

As educational material, the lira rewards a monthly review — the rate, the TCMB policy rate and the TUIK inflation reading side by side. Six cycles of that deliver a picture of how a currency crisis works that you will not get from any other pair.

Related reading: USD/JPY and the carry trade — carry in the version that usually rewards the risk; USD/MXN — the Mexican peso — a model EM carry with disciplined anti-inflation policy; watching central banks together — why policy gaps drive long-run trends.