USD/TRY regains upside traction near 14.90, CPI weighs on the lira

The lira trades on the defensive and gives away part of the recent advance, helping USD/TRY to regain some composure and approach the 14.90 region on Thursday.

USD/TRY up on higher inflation

USD/TRY leaves behind two consecutive sessions with losses and resumes the upside on the back of the renewed depreciation of the Turkish currency, particularly after inflation in Turkey rose at the fastest pace in the last 20 years in April.

Indeed, and tracked by the CPI, consumer prices in Turkey rose at a monthly 7.25% in April and 69.97% from a year earlier, while Producer Prices rose 7.67% MoM and 121.82% YoY. Finally, the Manufacturing PMI receded a tad to 49.20 during last month (from 49.40), remaining in the contraction territory.

The higher-than-expected inflation figures in the country were mainly in response to the transportation sector (including energy prices) as well as food prices.

Still around inflation, President Erdogan said last week that inflation should start to lose traction in May, while finmin Nebati suggested on Monday that the ongoing elevated inflation was short-lived… (wait… what?).

Maybe the CBRT is waiting for inflation to hit triple digits before taking some much-needed action…

What to look for around TRY

The lira keeps the range bound theme unchanged vs. the greenback, always in the area below the 15.00 neighbourhood for the time being. So far, price action in the Turkish currency is expected to gyrate around the performance of energy prices, the broad risk appetite trends, the Fed’s rate path and the developments from the war in Ukraine. Extra risks facing TRY also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent.

Key events in Turkey this week: Inflation Rate, Producer Prices, Manufacturing PMI (Thursday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) 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. Upcoming Presidential/Parliamentary elections.

USD/TRY key levels

So far, the pair is gaining 0.89% at 14.8575 and faces the next hurdle at 14.9889 (2022 high March 11) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a drop below 14.6836 (monthly low May 4) would expose 14.5458 (monthly low April 12) and finally 14.5136 (weekly low March 29).