The Turkish lira strengthened against its US peer to kick off the trading week, buoyed by reports that Turkey and Greece could soon resolve Maritime Boundaries. The lira found additional support on decent economic data, as well as optimistic forecasts for 2021. Can the lira keep up the momentum after a decent start to the first few weeks of the calendar year?

According to the Central Bank of the Republic of Turkey, the manufacturing confidence index rose to 107.0 this month, the best reading since October of last year. This is up from 106.8 in December. Ankara’s manufacturing base reported improvements in output, employment, exports, and optimism, but there was a decline in fixed investment expenditures.

Capacity utilization also remained above 75 for the fourth consecutive month, coming in at 75.4% this month. This is slightly down from the 75.6% reading in December.

Later this week, the summary from the Monetary Policy Committee (MPC) meeting in January will be released. Trade and foreign exchange reserves data will also be published.

For now, foreign exchange markets are monitoring a meeting between Greek and Turkish diplomats in Istanbul on Monday. The two sides are attempting to reach an agreement regarding Maritime boundaries as part of “exploratory talks.” This is the first time the two nations have initiated diplomatic talks over the matter in five years, mainly due to pressure from the European Union and NATO.

In recent months, Greek and Turkish governments have mobilized navies and warplanes in the Mediterranean Sea.

While Greece “will willingly discuss” with Turkey over the subject, Ankara wants to expand the scope of negotiations to other long-term issues with Athens.

Right now, the talks are non-binding and confidential.

A new Reuters poll suggests that Turkey’s economy will expand 4% in 2021, with inflation plummeting to 11.6% amid tightening monetary policy. But analysts say that these estimates will depend on President Recep Tayyip Erdogan and his tolerance for higher interest rates and slow economic growth as the central bank and Ministry of Finance home in on correcting macro imbalances.

“We expect economic activity to contract in 1H 2021 in sequential terms, the pressure on the balance of payments to ease and headline inflation to slow from May-June 2021,” said Berna Bayazitoglu of Credit Suisse in a research note.

The USD/TRY currency pair tumbled 0.37% to 7.3868, from an opening of 7.4145, at 13:13 GMT on Monday. The EUR/TRY slipped 0.57% to 8.9752, from an opening of 9.0223.

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Post tags: EUR/TRY, European Union, Greece, Lira, Manufacturer Confidence, NATO, Recep Tayyip Erdoğan, Turkey, USD/TRY

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