USD/TRY stays firmer at yearly top above 16.00 ahead of CBRT

• USD/TRY prints five-day uptrend, seesaws around the highest levels since December 2022.
• Fears of FX reserve depletion at CBRT recently favored bulls.
• CBRT is expected to keep benchmark rates unchanged at 14%, the fifth consecutive inaction.
• Second reading of the US Q1 2022 GDP will also decorate the calendar.

USD/TRY extends the run-up towards a record high ahead of the CBRT Interest Rate decision, sidelined around the yearly peak heading into Thursday’s European session. That said, the quote takes rounds to 16.35-40 by the press time, after refreshing the 2022 top with 16.46 the previous day.

The Turkish lira has been on the back foot since the early days of 2022 as markets lose confidence in the Turkish government’s efforts to stabilize the beleaguered currency while keeping the interest rates unchanged. The moves were also doubted on the recently depleting FX reserves of the Central Bank of the Republic of Turkey (CBRT).

“Data last Friday showed the central bank's net international reserves dropped some $3.5 billion to $11.53 billion in the week to May 13. Bankers calculate that they fell to $10 billion or less in the following week,” said Reuters.

Reuters also mentions, “Economists say rate hikes could help relieve both the lira and reserves. But President Tayyip Erdogan's opposition to policy tightening has left few expecting a turnaround any time soon, including when the bank meets on Thursday.”

Elsewhere, fears emanating from the Ukraine-Russia crisis and China’s covid conditions, as well as the fresh fears of the Sino-American tussles, weigh on the market sentiment and favor the US dollar’s safe-haven demand. However, the latest Federal Open Market Committee (FOMC) Minutes raised doubts about the 50 bps rate hike after September and probed the greenback bulls.

Looking forward, the CBRT is expected to keep the benchmark rate unchanged near 14%, which in turn could offer another push towards the north to the USD/TRY pair. However, any surprise rate hikes won’t be taken lightly and will be interesting to watch.

Technical analysis

A daily closing beyond an upward sloping resistance line from early January 2022, around 16.35 by the press time, keeps USD/TRY bulls hopeful of challenging the record high marked in 2021, close to 18.35.