USD/TRY reaches all-time highs above 18.30

• USD/TRY trades in new highs around the 18.30 region.
• The lira depreciates further and flirts with the 18.30 level vs. the dollar.
• The CBRT decision will be a close call later in the week.

Further weakness in the Turkish currency motivates USD/TRY to print new record highs around the 18.30 level at the beginning of the week.

USD/TRY now looks to the Fed, CBRT

USD/TRY extends the march north albeit at a snail pace on Monday, this time reaching the 18.30 region, or new all-time peaks on the back of the firmer note in the dollar and the omnipresent depreciation of the lira.

Later in the week, the Turkish central bank (CBRT) will have its monthly monetary policy gathering. Consensus around the event appears divided between those who expect further rate cuts and many others who lean towards a wait-and-see stance in order to assess the effects on the economy (if any at all) of the August’s surprising interest rate cut.

Furthermore, the lira has already lost more than 38% in 2022 and closed with losses in every month of the year so far.

Extra upside pressure for the pair would likely come from the FOMC gathering on Wednesday, where a 75 bps rate hike by the Fed is largely anticipated, which should keep the sentiment in the risk complex and the EM FX space depressed.

What to look for around TRY

USD/TRY maintains the underlying gradual upside well in place and already flirts with the 18.30 level.

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, the lira is poised to keep suffering against the backdrop of Ankara’s plans to prioritize growth (via higher exports and tourism revenue) and the improvement in the current account.

Key events in Türkiye this week: Consumer Confidence, CBRT Interest Rate decision (Thursday).

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 0.55% at 18.2944 and faces the next hurdle at 18.3033 (all-time high September 19) seconded by 19.00 (round level). On the downside, a break below 17.8743 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low August 9).