USD/TRY refreshes yearly top with eyes on 17.00 on Fed vs. CBRT bias ahead of US inflation

• USD/TRY remains on the front foot for the third consecutive day.
• Turkish President Erdogan’s rejection to rate hike contrasts Fed’s hawkish bias to favor bulls.
• Risk-off mood, firmer yields add strength to the pair’s upside momentum.
• US CPI appears the key as traders struggle to find Fed’s path post-September.

USD/TRY stays on the way to 17.00 threshold as it refreshes the yearly high for the third consecutive day while picking up bids near 16.85 ahead of Wednesday’s European session.

The broad US dollar rebound could be a general catalyst for the Turkish lira (TRY) pair’s latest strength. However, a monetary policy divergence between the US Federal Reserve (Fed) and the Central Bank of the Republic of Türkiye (CBRT) appears the fundamental base favoring bulls.

Despite witnessing the 70% inflation at home, Turkish President Tayyip Erdogan kept his pledge to reject the interest rate increases. “Speaking after a cabinet meeting this week, Erdogan said Turkey will not raise interest rates but rather continue cutting them in the face of high living costs,” said Reuters.

On the other hand, the US Dollar Index (DXY) reverses the pullback from a fortnight high as the Treasury bond yields regain upside momentum after snapping a six-day uptrend the previous day. The reason behind the greenback’s rebound could be linked to the anxiety ahead of Thursday’s European Central Bank (ECB) meeting, as well as Friday’s US Consumer Price Index (CPI) for May.

Additionally, the Atlanta Fed’s GDP measure, World Bank (WB) President David Malpass and officials from China, namely Vice Commerce Minister Wang Shouwen and Vice Finance Minister Zou Jiayi, renewed recession fears to offer extra strength to the US dollar.

It's worth observing that the risk-negative news from Ukraine also weighs on the mood and fuel the USD/TRY prices. “Kyiv says it has not yet reached any agreement with Russia or Turkey to allow the safe passage of its grain ships in the Black Sea, injecting skepticism into a push by the U.N. to create a vital food corridor,” per Politico.

The latest bullish bias of the USD/TRY traders is likely to extend amid a light calendar and risk-off mood.

Technical analysis

A daily closing beyond a three-month-old resistance line, around 16.72 by the press time, directs USD/TRY towards 17.00 and 17.25 hurdles before directing the bulls towards the 2021 peak surrounding 17.40.