USD/TRY renews yearly high on the way to 17.00 even as Erdogan eyes softer inflation ahead

• USD/TRY refreshes the highest levels in more than six months amid inflation fears in “Türkiye”.
• Turkish President Tayyip Erdogan hints at downtrend in inflation after 24-year high price numbers at home.
• Hawkish Fed bets, mixed sentiment also underpin the pair’s upside momentum.

USD/TRY remains on a front foot around $16.36, the highest level in 2022, amid Turkish lira (TRY) traders’ inflation fears despite President Erdogan’s efforts to placate TRY buyers. The pair’s upside momentum takes clues from Friday’s strong Turkish inflation data for May, as well as the US dollar’s rebound during the last week, not to forget hopes of Fed’s faster/heavier rate hikes.

“Turkish President Tayyip Erdogan said on Sunday that inflation figures from the month of May, when annual consumer prices jumped to a 24-year high, showed inflation was now on a downward trend,” said Reuters. It’s worth noting that Turkish Inflation for May jumped to 73.5% in the latest print.

Reuters also mentioned that the lira shed 44% last year and has been the worst performer in emerging markets for several years running due largely to economic and monetary policy concerns under President Tayyip Erdogan's government.

On the other hand, the odds favoring the Fed’s 0.50% rate hike in September recently jumped to 75% versus 35% a week ago, which in turn highlights this week’s US Consumer Price Index (CPI) data and favor the US dollar buyers. That said, the US Dollar Index (DXY) snapped a two-week downtrend by the end of Friday, down 0.14% intraday near 102.00 by the press time.

The greenback’s latest could be linked to the US Nonfarm Payrolls (NFP) which came in 390K for May, more than 325K expected but lesser than the upwardly revised 428K previous readouts. Further, the Unemployment Rate remained unchanged at 3.6% versus expectations of a slight decline to 3.5%. Additionally, the US ISM Services PMI fell to 55.9 in May, versus 56.4 market consensus and 57.1 flashed in April. Following the data, Cleveland Fed President Loretta Mester crossed wires while saying that the one problem that the Fed has is inflation. The policymakers also added that the risks of a recession have gone up.

Amid these plays, Wall Street benchmarks closed in the red and the US 10-year Treasury yields posted the first weekly gain in three to portray the risk-off mood the previous day. However, the S&P 500 Futures rise half a percent to 4,126 and the US 10-year Treasury yields dropped 1.3 basis points (bps) to 2.942% at the latest.

Moving on, USD/TRY traders should pay attention to the risk catalysts, amid a pre-Fed blackout for Fed policymakers, while waiting for Friday’s US CPI.

Technical analysis

A successful break of the previous resistance line from early January, around 16.45 by the press time, directs USD/TRY prices towards the $17.00 threshold before challenging the late 2021 peak surrounding $18.36.