USD/TRY reaches an all-time high past 18.27

• USD/TRY extends the march higher past 18.27 on Thursday.
• There seems to be no respite for the lira slump.
• The CBRT could reduce the policy rate further next week.

Another day, another low in the Turkish currency vs. the greenback. This time USD/TRY advanced to levels past 18.27, printing at the same time new all-time tops.

USD/TRY now looks to CBRT

USD/TRY extends the gradual march higher for yet another session on Thursday and remains well on track to close its sixth consecutive week with gains. So far this year, the lira has depreciated around 38% vs. the US dollar vs. 44% in all of 2021.

The outlook for the lira remains well in the negative territory in a context where inflation gives no signs of mitigating and the central bank (CBRT) seems to have embarked in a renewed easing cycle of its monetary conditions in response to the government’s exclusive focus on growth and the improvement of the current account.

On the latter, the CBRT meets next week and could reduce the One-Week Repo Rate for the second meeting in a row following August's 100 bps rate cut.

In Türkiye, the Budget Balance showed a TL3.59B surplus for the month of August, reversing July’s TL64B deficit.

What to look for around TRY

USD/TRY extends the upside momentum to new all-time peak around the 18.27 area on Thursday.

So far, price action around the Turkish lira is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in July and August), real interest rates remain entrenched well in negative territory and the political pressure to keep the CBRT biased towards low interest rates remains omnipresent.

In addition, there seems to be no other immediate option to attract foreign currency other than via tourism revenue, in a context where official figures for the country’s FX reserves remain surrounded by increasing skepticism.

Key events in Türkiye this week: Budget Balance (Thursday) – End Year CPI Forecast (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s 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. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.20% at 18.2618 and faces the next hurdle at 18.2723 (all-time high September 15) seconded by 19.00 (round level). On the downside, a break below 17.8590 (weekly low August 17) would target 17.8203 (55-day SMA) and finally 17.7586 (monthly low August 9).