Turkish Lira Outlook: 2026 Exchange Rate Forecast and Trading Opportunities

In recent years, Turkey’s economy has experienced significant fluctuations. Traders focused on the foreign exchange market may have noticed that TL forecasts are becoming increasingly complex. Since the new economic team took office in mid-2023, Turkey’s monetary policy has undergone a clear shift, which is crucial for investors to understand the future trajectory of the Turkish lira. To assess the accuracy of TL predictions, it is essential to understand the key factors driving exchange rate fluctuations.

Central Bank Policies and Inflation Control—The Foundation of TL Forecasts

After President Erdoğan was re-elected in May 2023, he immediately appointed a new economic team with a market-oriented background. Former Merrill Lynch strategist Mehmet Şimşek was appointed Minister of Finance, and Fadıl Kıran, who took over as Central Bank Governor in February 2024, represents a more stable monetary policy approach. These personnel changes have generated market optimism.

The Central Bank of Turkey has adopted aggressive monetary policy measures. From February 2023 to March 2024, the benchmark interest rate was sharply increased from 8.5% to 50%. This tightening policy has achieved notable results—inflation has fallen from over 75% early last year to around 28-30%. As inflation pressures eased, the central bank began cutting rates this year, with the current benchmark rate stable at 43%. This interest rate level offers relatively high return potential for investors involved in TL trading.

The inflation targets set by the central bank further demonstrate its determination to control prices. Turkey has set inflation targets of 24%, 16%, and 9% for 2025, 2026, and 2027, respectively. Achieving these targets would create favorable conditions for the lira to appreciate.

The new economic team also lifted many restrictions imposed by the previous administration. For example, prior regulations required banks to purchase government bonds if they provided loans above the benchmark rate or failed to meet corporate lending targets. The removal of such measures helps attract more international capital inflows, supporting the lira’s exchange rate.

The Impact of Geopolitical Risks on TL Forecasts

Although Turkey, as a Muslim-majority country, has repeatedly expressed support for Palestine, it has not yet become a direct participant in the Middle East conflict. However, regional developments still have profound effects on Turkey’s economy. Any trade restrictions or energy price fluctuations could directly impact the value of the lira.

Additionally, Turkey is located in a high seismic risk zone. The earthquake in early 2023 caused over 50,000 deaths and severely impacted the economy. The risk of similar natural disasters in the future remains, which is an important factor to consider when making TL forecasts.

Euro to Lira Forecast: Stability vs. Confidence

During 2025, the euro is generally expected to appreciate against the lira, with the current rate around 1:47.73. However, the future trend of EUR/TRY remains uncertain.

Factors supporting euro appreciation include:

Investors still harbor structural doubts about Turkey’s economy. Despite declining inflation, the history of inconsistent policies makes many institutional investors cautious. The European Central Bank (ECB) is likely to maintain relatively stable interest rates, which would strengthen the euro. US tariff pressures are lower than expected, and EU export sectors are relatively stable. Due to exchange rate and political risks in Turkey, investors demand higher risk premiums, limiting the lira’s potential for appreciation.

Factors supporting lira appreciation include:

Turkey has made substantial progress in controlling inflation, providing long-term support for the exchange rate. Turkey’s economic growth is expected to be around 3% in 2025, higher than the Eurozone’s 0.9%. The central bank’s benchmark rate at 43% far exceeds the ECB’s 2%, meaning holding lira assets can yield significant interest income. Many EU countries have high debt levels, which could weigh on the euro’s performance.

If the European economy faces greater pressure due to high debt and slowing international trade, while Turkey successfully manages inflation, the lira could appreciate relative to the euro. If the Ukraine situation moves toward peace and energy prices decline, this would benefit the EU and push up the euro; conversely, worsening conditions could weaken the euro.

US Dollar to Lira Forecast: Diverging Global Policies

From November 2024, when Trump was elected, to mid-2025, the US dollar has fallen 6.7% (measured by the dollar index), but during the same period, USD/TRY has appreciated about 17%. This indicates that Turkey-specific factors, such as inflation, have a greater influence on the exchange rate.

The US economy remains relatively optimistic. According to Goldman Sachs, the US GDP growth forecast for 2025 is 2.5%. Turkey is also expected to grow between 2.7% and 3.5%, narrowing the growth gap.

The Federal Reserve has paused rate cuts after multiple reductions in 2024, maintaining the benchmark rate at 4.25%-4.50%. Markets expect two more rate cuts in 2025. Another risk is US inflation, which was 2.7% in July—moderate but still above target. If inflation remains high, the Fed may prolong the high-interest-rate cycle, further strengthening the dollar. From the USD/TRY perspective, higher US rates independently push the dollar higher.

Outlook for 2026: Key Opportunities in TL Forecasts

The core issue for Turkey’s economic outlook boils down to one word: stability. Investors are concerned whether Turkey can provide a predictable economic policy framework or if the president’s personal preferences will continue to disrupt long-term planning.

To stabilize the exchange rate and support lira appreciation, Turkey needs reforms across multiple areas. First, maintaining high interest rates to keep inflation in check. Second, creating jobs and optimizing the labor market to reduce unemployment. More importantly, strengthening the rule of law—ensuring judicial independence, central bank autonomy, equal application of laws, and anti-corruption measures.

Externally, Turkey must balance between Western alliances (as a NATO member) and emerging powers (Russia, Iran, China). This strategic choice will influence international investment flows.

Between 2024 and 2025, the US dollar and euro are projected to appreciate against the lira by approximately 17% and 31%, respectively. While this reflects the challenges Turkey faces, it also creates opportunities for savvy traders. If Turkey can implement the reforms mentioned and maintain policy coherence, the lira, which is currently severely undervalued, could see significant gains.

In EUR/TRY, Turkey’s trade deficit may exert downward pressure. However, if Europe faces economic slowdown, high debt burdens, and international trade declines, while Turkey successfully manages inflation, the lira could appreciate.

The US economy remains optimistic for 2025, and with the Trump administration possibly implementing protectionist tariffs and domestic subsidies, the dollar could continue to strengthen. This would likely push USD/TRY higher. However, another aspect of TL forecasts is that if Turkey’s reforms succeed and political stability improves, the lira could rebound sharply from its current lows.

In the foreign exchange market, high risk often accompanies high reward. While the volatility of the Turkish lira is considerable, for traders with strong risk tolerance, this uncertainty also presents potential profit opportunities. The key is to closely monitor Turkey’s policy developments, inflation data, geopolitical events, and global central bank policies to seize opportunities in TL trading.