USD/TRY seesaws near $13.50 even as Turkish President Erdogan prepares to boost lira interest

  • USD/TRY consolidates biggest daily gains in a week within $13.57-50 range.
  • Turkish President Erdogan braces for 2022 to be Turkey's "brightest year".
  • US Treasury yields seesaw around two-year high amid Fed rate hike concerns.
  • Virus woes, yields and geopolitics can entertain traders ahead of Thursday’s CBRT rate decision.

Having cheered the biggest daily run-up in a week, USD/TRY seesaws near $13.50-55 during Wednesday’s Asian session.

In doing so, the Turkish lira (TRY) pair struggles to justify President Recep Tayyip Erdogan’s confidence to overcome the inflation fears and mark 2022 as the “brightest year”. The reason for the pair traders’ skepticism could be linked to the pre-CBRT caution and strong US Treasury yields.

“President Tayyip Erdogan said that he was pleased with the lessening in lira volatility and that the government was working on steps to increase interest in the Turkish currency, state media reported on Tuesday,” per Reuters. The news also stated Erdogan’s expectations suggesting that the interest rates, exchange rates and inflation will gradually fall.

It should be observed that the Turkish central bank (CBRT) is reportedly said to hold an extraordinary general assembly on February 3, Reuters reports, citing a newspaper advertisement on Tuesday.

Elsewhere, the US 10-year Treasury yields gained one basis point (bps) to refresh the highest levels since early 2020 around 1.88% by the press time. Coupons of the other key US bond variants, like 2-year and 5-year, also renewed multi-day peaks during the early Asian session during the four-day uptrend before recently grinding higher.

Looking forward, the firmer US Treasury yields can keep USD/TRY buyers hopeful but Thursday’s CBRT decision will be the key. Forecasts suggest no change in the headline 14% rate but Erdogan is known to push the central bank towards more rate changes and might reveal the surprise.

Technical analysis

Although the 20-DMA level near $13.05 restricts the short-term downside of the USD/TRY prices, a weekly resistance line near $13.65 holds the key to the pair’s run-up to challenge the monthly peak of $13.94.

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