USD/TRY extends the consolidation below 8.70

The Turkish lira keeps the rangebound trade unchanged vs. the dollar and motivates USD/TRY to stabilize around the 8.70 region so far on Tuesday.

USD/TRY stays cautious ahead of CBRT

USD/TRY remains within a consolidative mood around 8.70 following the recent drop from new all-time highs in the 8.80 zone.

The pair, in the meantime, is likely to keep the cautious note unchanged, as the next meeting by the Turkish central bank (CBRT) gets closer (July 14).

Monday’s higher-than-forecast inflation figures in Turkey caught markets off-guard, pouring cold water over any probability of an interest rate cut at the CBRT event next week. Despite there is no guarantee of a rate cut later in the year, the perseverant high inflation is seen keeping that option out of favour, at least for the time being.

In fact, Turkey’s CPI rose 1.94% MoM in June and 17.53% from a year earlier, surpassing initial estimates and mitigating speculation that inflation could have peaked earlier in the year. Additional data saw Producer Prices rising 4.01% inter-month and 42.89% over the last twelve months.

What to look for around TRY

The outlook for the Turkish lira remains fragile despite the CBRT reiterated its commitment to fight the high inflation at its recent meetings. In the meantime, political effervescence within the ruling AK Party, the impact of the pandemic on the economic outlook, high unemployment and the so far utter absence of any intentions to implement the much-needed structural reforms remain poised to keep the lira under persistent pressure for the foreseeable future.

Key events in Turkey this week: Current Account, End Year CPI Forecast (Friday).

Eminent issues on the back boiler: Potential US/EU sanctions against Ankara. Government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic. Capital controls? The IMF could step in to bring in financial assistance.

USD/TRY key levels

So far, the pair is up 0.05% at 8.6681 and faces the next up barrier at 8.7974 (all-time high Jun.25) ahead of 9.0000 (round level). On the downside, a drop below 8.5953 (weekly low Jun.23) would aim 8.4971 (50-day SMA) and finally 8.2803 (monthly low Jun.11).