USD/TRY: Upside remains capped by 18.60 despite CBRT rate cut

• USD/TRY stays pretty much unchanged around 18.59.
• The CBRT cut rates by 150 bps, more than expected.
• Single digit interest rate could be a couple of meetings away.

USD/TRY remains directionless just below the 18.60 region for yet another session on Thursday.

USD/TRY apathetic post-CBRT

USD/TRY keeps exchanging gains with losses, always within the broader range bound theme and below the 18.60 region for the time being.

Thursday’s price action appears as no exception despite the Turkish central bank (CBRT) reduced the One-Week Repo Rate by 150 bps at its event, more than the full-point raise estimated by the broad consensus.

Indeed, the CBRT walked (President Erdogan’s) talk and kept the easing cycle well and sound in October, leaving at the same time the door open to a similar move at the next meeting, which could be the end of the ongoing cycle, as per the bank’s statement.

No big news from the statement, as it emphasizes the stronger job creation in Türkiye vs. peer economies, while weakening foreign demand could ring some alarms in the near term. The stronger than expected performance of tourism revenue continued to collaborate with the improvement of the current account.

What to look for around TRY

USD/TRY keeps navigating the area of all-time highs near 18.60, paying little to nil attention to the latest CBRT interest rate decision.

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 the last three months), real interest rates remain entrenched well in negative territory and the omnipresent political pressure to keep the CBRT biased towards a low-interest-rates policy.

In addition, the lira is poised to keep suffering against the backdrop of Ankara’s plans to prioritize growth via transforming the current account deficit into surplus, always following a lower-interest-rate recipe.

Key events in Türkiye this week: CBRT Interest Rate Decision (Thursday) – Consumer Confidence (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 0.07% at 18.5950 and faces the next hurdle at 18.5980 (all-time high October 11) followed by 19.00 (round level). On the downside, a break below 18.2560 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low).