USD/TRY shrugs off CBRT intervention as inflation fears favor bulls near all-time high

• USD/TRY remains sidelined after consolidating gains from record top the previous day.
• CBRT intervenes, Turkish President Erdogan meets Central Bank Governor, FinMin but refrains from rate hike.
• Risk-off mood underpins USD bulls amid Omicron fear, pre-Fed anxiety, Thursday’s CBRT meeting is the key.

USD/TRY pokes intraday high around $13.85, testing the previous day’s pullback from an all-time high during early Tuesday.

The Turkish lira (TRY) pair refreshed its record top to $14.65 on Monday as Turkey’s five-year Credit Default Swaps (CDS) jumped 13 basis points (bps). The run-up also took clues from the market’s risk-aversion wave ahead of the key central bank meetings and fears emanating from the South African covid variant called Omicron.

Following the slump in the TRY, Turkish President Recep Tayyip Erdoğan met the Governor of the Central Bank of the Republic of Turkey (CBRT) and the newly appointed Finance Minister (FinMin) Nureddin Nebati. The meeting preceded the central bank’s intervention that dragged USD/TRY from the all-time high.

However, Erdogan’s rejection to rate hikes and firmer inflation pressure in the economy keeps USD/TRY buyers hopeful. “Erdogan is standing firm on his policy of low borrowing costs, raising expectations for another rate cut when the Central Bank's monetary policy board meets Thursday. Adding to concerns, S&P Global Ratings lowered its outlook for Turkey's credit rating to negative from stable Friday, according to media reports,” said The Independent (UK).

Elsewhere, the market’s mood remains mixed, mostly downbeat, as traders await the key central bank meetings and the Omicron fears escalate. That said, the sour sentiment underpins traditional safe havens like the US government bonds, gold and the US dollar.

It should be noted, however, that Friday’s US Consumer Price Index (CPI) for November and the US inflation expectations, portrayed by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, challenge Fed hawks and weigh on the risk appetite.

On the other hand, the UK reports the first Omicron-linked death and Californian recall the mask mandate. Further, Australia’s largest state, population-wise, New South Wales (NSW) reports the highest daily virus infections tally in more than two months.

Against this backdrop, the US 10-year Treasury yields seesaw around 1.42% whereas the S&P 500 Futures rise 0.15% at the latest. Furthermore, shares in Japan, Australia, New Zealand and China trade mixed by the press time while the US Dollar Index (DXY) rises 0.06% intraday to 96.41 at the latest.

Looking forward, Wednesday’s Fed verdict and Thursday’s CBRT action will be important for the USD/TRY traders.

Read: Fed Preview: Dollar hinges on 2022 rate hike dots, guide to trading the grand finale of 2021