USD/TRY advances to new highs past 18.33, focus on Fed, CBRT

• USD/TRY clinches fresh all-time tops north of 18.30.
• The Fed is expected to hike rates by 75 bps later.
• The CBRT meets on Thursday amidst a divided consensus.

The Turkish lira depreciates further and helps USD/TRY escalate to new record highs around 18.32 on Wednesday.

USD/TRY remains bid ahead of FOMC, CBRT

USD/TRY maintains the optimism well and sound so far this week and manages to advance past the 18.30 region and print at the same time new all-time highs, always on the back of the intense rally in the dollar as well as the omnipresent poor outlook for the lira.

In the meantime, the pair is poised to extend the upside for the time being on the back of the tighter-for-longer stance from the Fed – which is likely to be confirmed later on Wednesday – and the absence of any serious measure from Ankara in order to quell the entrenched inflation.

On the latter, Tuesday’s comments from President Erdogan that inflation is not an “insurmountable economic threat” (and that it will start falling towards year-end) appear to have underpinned the investors’ generalized perception that there are no solid plans to bring inflation down.

On Thursday, the Turkish central bank (CBRT) meets and opinions among market participants remain divided on whether the central bank will make an impasse to evaluate the effects of the August rate cut, or it will emphasize the resumption of the easing cycle.

What to look for around TRY

USD/TRY maintains the underlying gradual upside well in place and looks to consolidate the recent breakout of the 18.30 zone.

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 0.10% at 18.3193 and faces the next hurdle at 18.3327 (all-time high September 21) seconded by 19.00 (round level). On the downside, a break below 17.9187 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low