USD/TRY surpasses 18.30 to print new record highs

The Turkish lira accelerates the downside and helps USD/TRY printing new record peaks past the 18.30 level on turnaround Tuesday.

USD/TRY now looks to the CBRT

USD/TRY keeps the auspicious start of the week and adds to Monday’s gains well north of the 18.00 mark to clinch fresh all-time highs on the back of the strong bounce in the dollar.

Indeed, Tuesday’s pick-up in the dollar weighs on the EM FX space ahead of the key FOMC event on Wednesday, where the Fed is expected to hike rates by 75 bps.

Still around central banks, the CBRT will decide on the One-Week Repo Rate on Thursday, amidst markets’ consensus now tilted to an on hold stance, as the bank would likely stay on the sidelines assessing the effects on the economy of the unexpected rate cut in August.

Earlier on Tuesday, President Erdogan dialed down the current high inflation levels saying that inflation is not an “insurmountable economic threat”, while he expects consumer prices to start falling at the turn of the year.

It is worth recalling that the CPI in Türkiye ran at the highest pace in the last 24 years in August at around 80%YoY.

What to look for around TRY

USD/TRY maintains the underlying gradual upside well in place and already trespasses the 18.30 level.

So far, 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 and August), 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, the lira is poised to keep suffering against the backdrop of Ankara’s plans to prioritize growth (via higher exports and tourism revenue) and the improvement in the current account.

Key events in Türkiye this week: Consumer Confidence, CBRT Interest Rate decision (Thursday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s 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 0.26% at 18.3103 and faces the next hurdle at 18.3118(all-time high September 20) seconded by 19.00 (round level). On the downside, a break below 17.8983 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low August 9).