USD/TRY smashes the 17.00 ceiling and prints new 2022 highs

• USD/TRY extends the advance further north of 17.00.
• The better tone in the dollar weighs on the EM FX space.
•  Turkey 10y bond yields navigate in monthly tops around 24.00%.

The Turkish lira loses further ground and pushes USD/TRY to new YTD peaks past the 17.00 mark on Wednesday.

USD/TRY up on stronger dollar

USD/TRY prints gains for the third session in a row and manages to break above the 17,.00 barrier against the backdrop of the generalized bid bias in the US dollar and persistent outflows from the risk complex and the M FX universe.

Indeed, the greenback gathers further pace helped by the firmer sentiment and the resumption of the uptrend in US yields along the curve. Extra legs in the buck come ahead of the key FOMC event due on June 15, where the Fed is expected to raise the Fed Funds Target Range (FFTR) by 50 bps.

Investors seem to have accelerated the selling pressure around the lira particularly after May’s inflation figures ran at the fastest pace in the last two decades. In addition, the bearish sentiment on the currency was exacerbated further (like if the lira needed it) after President R.T.Erdogan reiterated on Monday that rates will continue to go down, reaffirming the government’s view against rate hikes.

What to look for around TRY

USD/TRY keeps the underlying upside bias well and sound and now surpasses the 17.00 neighbourhood, an area last traded back in December 2021.

So far, price action in the Turkish currency is expected to gyrate around the performance of energy prices, the broad risk appetite trends, the Fed’s rate path and the developments from the war in Ukraine.

Extra risks facing TRY also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent.

Key events in Turkey this week: Unemployment Rate (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new 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. Upcoming Presidential/Parliamentary elections.

USD/TRY key levels

So far, the pair is gaining 2.14% at 17.0903 and faces the next up barrier at 17.0984 (2022 high June 8) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the flip side, a breach of 16.3136 (monthly low June 3) would aim to 16.1431 (low May 27) and finally 15.6684 (low May 23).