USD/TRY ignores DXY pullback to renew record top near 18.50 on CBRT clues

USD/TRY shrugs off the US dollar pullback to stay on the front foot and refresh the all-time high near 18.48 heading into Tuesday’s European session. In doing so, the Turkish lira (TRY) seems to cheer hints of more rate cuts from the Central Bank of the Republic of Türkiye (CBRT).

Reuters quotes an official document from the CBRT, published Monday, to mention that Turkey's central bank lowered its reference interest rate by nearly 140 basis points to 13.96% for October in a move aimed at further cutting rates on corporate loans. The news also mentioned, “Last month, the central bank unveiled new required bond holdings for lenders meant to address the widening gap between the bank's policy rate and lending rates.”

Ankara is already going through a lot these days due to the CBRT’s resistance to rate hikes and nearly 80% inflation, not to forget broad geopolitical tension. That said, the latest moves from the central banks add weakness to the TRY.

On the other hand, the US Dollar Index (DXY) retreats from the 20-year high, down 0.45% intraday near 113.60 by the press time, as softer yields join downbeat US data and inflation expectations.

US Treasury yields retreat from the multi-year high while the S&P 500 Futures also print mild gains by the press time. That said, US 10-year Treasury yields rose to the highest levels in 12 years while the 2-year bond coupons refreshed the 15-year top as traders rushed to the risk safety.

Further, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29.

Elsewhere, the US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, signaled that the gauges refreshed the multi-day low on Monday. While noting the details, the longer-term inflation expectations dropped to the lowest level since July 13, 2022, whereas the 5-year benchmark slumped to the lowest levels since June 2021 with the latest figures being 2.32% and 2.33% respectively.

Given the fundamental weakness in Turkey, vis-à-vis the US, the USD/TRY pair can continue to remain firmer. However, US CB Consumer Confidence for September and Durable Goods Orders for August will join today’s speech from Fed Chair Jerome Powell to direct short-term moves.

Technical analysis

A two-month-old ascending resistance line challenges USD/TRY bulls around 18.50 amid the overbought RSI conditions. The anticipated pullback moves, however, remain elusive unless breaking an upward sloping trend line support near 18.28.