USD/TRY finally reaches 18.20 and beyond, new 2022 highs

The Turkish lira extends its march south and encourages USD/TRY to print fresh 2022 peaks above the 18.20 level on Thursday.

USD/TRY: The hunt for the all-time high at 18.25

USD/TRY posts gains for the second straight session on Thursday, this time surpassing the 18.20 level and recording fresh YTD highs. It is worth noting that the lira loses nearly 38% vs. the dollar so far this year and starts the ninth consecutive month with gains.

In the meantime, further strength in the dollar, which in turn remains propped up by expectations of extra tightening by the Federal Reserve in its battle to tame inflation, continues to underpin the relentless move higher in the pair.

In the Turkish calendar, the Manufacturing PMI improved to 47.40 in August (from 46.90). Despite the better reading, the manufacturing sector still navigates in the contraction territory (<50).

What to look for around TRY

The upside bias in USD/TRY remains unchanged and approaches the all-time high around 18.25. The uptrend in spot has been intensified following the unexpected interest rate cut by the CBRT on August 18.

In the meantime, price action around the Turkish lira is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in July), real interest rates remain entrenched well in negative territory and the political pressure to keep the CBRT biased towards low interest rates remains omnipresent.

In addition, there seems to be no other immediate alternative to attract foreign currency other than via tourism revenue, in a context where official figures for the country’s FX reserves remain surrounded by increasing skepticism among investors.

Key events in Türkiye this week: Manufacturing PMI (Thursday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.09% at 18.2013 and faces the immediate target at 18.2060 (2022 high September 1) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.7586 (monthly low August 9) would pave the way for 17.5948 (55-day SMA) and finally 17.1903 (weekly low July 15).