USD/TRY reverses from five-week top as US dollar weakens on market optimism

USD/TRY struggles to keep the bounce off the intraday low, down 0.36% on a day around $13.61 ahead of Monday’s European session.

The Turkish lira (TRY) pair refreshed a five-week high early in the Asian session before taking a U-turn from $13.78.

While the pair’s initial up-moves could be linked to chatters surrounding the Turkish central bank’s (CBRT) latest inaction and political plays in Ankara, the pullback moves could be attributed to the market’s risk-on mood amid headlines concerning Russia-Ukraine tussles.

CBRT kept the benchmark rates unchanged at 14.0% in the last week but kept the markets liquid via repo auctions. The Turkish central bank also said, "Expecting disinflation process to start on the back of measures taken." Elsewhere, Reuters reports political challenges for the current President Recep Tayyip Erdogan. The news said, “A veteran Turkish political leader who has struggled for years to have President Tayyip Erdogan voted out of office says it is "very clear" that his dream is drawing nearer, even as doubts remain about whether he will be the main opposition candidate at presidential elections set for 2023.”

On a different page, risk appetite improved amid fresh chatters over a summit between US President Joe Biden and his Russian counterpart Vladimir Putin. Also weighing on the metal’s safe-haven demand is the scheduled meeting between US Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov. However, headlines conveying the US preparedness to levy harsh sanctions on Russia, in case of Ukrainian invasion, keep the market optimists on the edge.

Other than the geopolitics, recently easy Fedspeak also weighs on the USD/TRY prices. That said, Chicago Fed President and FOMC member Charles Evans said on Friday that the current Fed policy had been "wrong-footed" in the face of high inflation, but may not need to become restrictive. On the other hand, New York Federal Reserve Bank President John Williams and the No. 2 official on the Fed’s policy-setting panel mentioned, "I don’t see any compelling argument to taking a big step at the beginning."

Amid these plays, the S&P 500 Futures reverse the early Asian loss of around 0.50% while the US Dollar Index (DXY) remains pressured around 95.80 by the press time.

Looking forward, the first readings of the US PMIs for February and Fedspeak will join the US Core PCE Price Index, the Fed’s preferred inflation reading, to decorate this week’s calendar. However, major attention will be given to risk catalysts for clear directions.

Technical analysis

Unless providing a daily close below the monthly support line and 21-DMA, around $13.55, USD/TRY buyers remain hopeful to challenge the yearly peak surrounding $13.95.