Is there a bullish case for the Lira? One person thinks so. Most think otherwise.

Lira Plunge Resumes

#Turkey Lira keeps falling as #Qatar currency swap agreement fails to stop the Lira rout. The deal is first step after Qatar’s $15bn investment pledge to Turkey. pic.twitter.com/LdK82ebU2o

— Holger Zschaepitz (@Schuldensuehner) August 20, 2018

Interest Rates top 20% 

#Turkey rout continues w/ Lira keeps falling and 10y yields risings as Germany not considering financial aid for Turkey, spokesman says. pic.twitter.com/D2vFT2Nw6i

— Holger Zschaepitz (@Schuldensuehner) August 20, 2018

There was a rumor Germany would come to the aid of Turkey. That rumor seemingly died today.

Robin Brooks Thinks Lira is Undervalued

A large negative credit impulse is shaping up from preliminary data for Q3, which will weigh on activity and compress imports, adding to the positive impulse to export volumes from Lira undervaluation. pic.twitter.com/Pvqva5FVaM

— Robin Brooks (@RobinBrooksIIF) August 20, 2018

Current Account Surplus

Our trade model — which feeds Lira depreciation into export volumes based on historical betas — suggests that the underlying current account could even be in surplus. External fundamentals — relevant for the Lira — are improving rapidly, at the cost of output loss. pic.twitter.com/megmqIvENs

— Robin Brooks (@RobinBrooksIIF) August 20, 2018

Switched Position 

We spent much of 2018 being bearish on the Lira, since our models showed it to be overvalued. But at these levels the Lira is cheap on a fundamental basis. So we have been on both sides of the issue, just something I want to emphasize. pic.twitter.com/w8DH7qwijs

— Robin Brooks (@RobinBrooksIIF) August 20, 2018

Yesterday’s Story 

Last year’s credit boom took Turkey’s current account pretty much to the bottom of the range across EM (red). But that is also yesterday’s story. A large adjustment is underway that — together with big Lira depreciation in real effective terms — could narrow the deficit a lot. pic.twitter.com/XoiR926OM7

— Robin Brooks (@RobinBrooksIIF) August 20, 2018